A Conversation With a Lender
You might be asking yourself…”So lumber is going down, but how are people dealing with these interest rates”?
If any of us were an adult in 1970, in our lifetime we have now seen interest rates as high as 18.75% and as low as 2.35%. Being familiar with such a wide range of rates, we may have thought it may be time for a single-level home. So where are interest rates now and how are lenders helping clients in that situation? I spoke with a lender on Friday and asked a few questions. In non-banker terms here is how I understood the conversation:
Question #1- Where are interest rates as of Friday Jan. 20th at your institution? 5.75% on a 10/1 arm.
Question #2 – What is a 10/1 arm? A 10/1 arm means that you lock in an interest rate for 10 years and then the interest rate could possibly adjust every one year thereafter.
Question #3- What if interest rates drop within that 10 year period? In this case, you get to realize the lower rate without the risk of it ever exceeding 5.75% in that 10 year period.
Question #4 – If interest rates drop at some point during that 10 years, can I refinance? Yes
Question #5- What does the interest rate forecast look like? Well, you can look at the top 22 financial forecasters and some say they will go up and some will say they will go down within the next year.
Question #6- Can one still get a construction loan? Yes, with a completed contract with a builder, you can finance the construction at 5.75%, only pay interest of what has been completed, and any cash brought to the table will be used first before interest accruing money will be used. In this case you are locked in for 11 years essentially.
Question #7- Just to clarify, a client is guaranteed to never pay above the locked-in rate, but can benefit from a lower rate if rates go down? Yes.
Question #8- Can a person buy down their interest rate? Yes, that is typically used in a fixed- rate situation and deals with points. It can be done.
My best advice for those toying with the idea of moving into a single-level home (whether that be in a month or 10 years) is it is easier to do the following things now, rather than start from scratch later, especially knowing a health issue could speed up the process.
1. Know what your home’s current value is
2. Know what is on the market in your area for single-level homes
3. Get pricing on a new single-level home
Our job is to provide this information to our clients and allow them to make the decisions.
Make sure you get an accurate idea of what your current house is actually worth. Many have been in their homes for decades and remember what they paid back then, but have no idea what their house is worth now.