Are the current home interest rates (7% – 8%) the new normal

              There is a lot of information on the internet with regard to future of home mortgage (loan) interest rates.  Some economist say that there will be some rate droppage later this year.  Other say rates will remain flat for 2024.  There are even economist who say that rates will slightly increase this year.  All are valid points as to why one should wait before buying or selling a home.  After all, why buy when rates are high, when in the future either the rates or home prices will drop.  But what happens if they don’t; at least to the extent that people expect them to?  Should you put your life on hold, when it may take years for either prices or interest rates to drop?

              As mentioned in a previous blog, unfortunately life gets in the way, and waiting to purchase a home or a larger home may not be an option.  That said, what do you do if you need to move, but cannot afford to purchase a property at the current interest rate?  There are options.  In this blog we will briefly explore what some of those options are.

              One option that potential buyers can explore, is purchasing a multi-family home.  While interest rates may have risen, and purchase prices may have remained flat, the rental market (in terms of rent) has increased.  This means that higher rents (attributed to tenants) can help off-set the higher interest rates, making purchasing a home affordable.  This is especially a good option for first time home buyers.  It will allow them to purchase a property they can afford and build equity.

              Another option is a variable rate mortgage.  This means that your interest rate will reset after a certain amount of years (e.g., five (5) or eight (8) years).  (The benefit of a variable rate mortgage is more often than not, the initial interest rate is less than that of a thirty (30) year interest rate).  While there is a risk that interest rates will not come down, it would seem likely that in the said time frame, there is a chance interest rates will come down, and the buyer can refinance at a lower rate.  Even if rates do not come down, a buyer will have built up equity in the home, and can possibly refinance to a fixed interest rate that is less than the amount he/she would be paying when the loan re-sets.  Alternatively, if such a rate is not available, the potential buyer would be better off at the re-set rate, then if he/she were just trying to purchase a home at the new flat interest rates.  Again, the buyer will also have built up some equity in the home, which they would not have had the ability to do if they kept renting.

              A final option this blog will touch upon is having the seller take back a note.  Not all sellers are residents in the properties they are looking to sell.  Even if they are, some sellers may be willing to allow a buyer to pay a certain amount of money up front, and take a note back for the rest.  The hope in this scenario is the amount of interest the seller would be looking for is less than the average home mortgage rate on the market.  Some would ask why would a seller do this?  One reason is a steady cash stream.  If the buyer fails to pay it off, the seller can foreclose on the property[1].  Seller financing is not as common an option as the other two (2) referenced above, but in a world where a seller wants to sell, but sees that buyers are reluctant due to the high interest rates, it is an alternative for both a buyer and seller to explore.

The information in this blog posting is for general information purposes only. Nothing in this blog or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. The information in this blog is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.

[1] Please note foreclosing is neither a cheap nor easy process.  It is also too cumbersome for this blog, so the details as well as the costs and benefits of foreclosing will not be addressed here.

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