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Rising mortgage interest rates are on everyone’s mind lately, so I sat down with Miles Pitcher from Superior Lending to chat about why rates are on the rise and what it means for home buyers. It turns out there’s a lot more to mortgage interest rates than meets the eye!
Kathy Campbell I’m talking with Miles Pitcher about when he predicts interest rates will go down.
(At the time of the interview, rates had increased to 6.5%. On date of publication-they were around 7%.)
Mortgage interest rates recently increased to 6.5%. So those buying a home can expect to have a higher payment.
Many recommend buying now – because sellers are more negotiable on price and terms – then refinancing later when rates go down.
Miles Pitcher
Yes, that’s right.
Kathy Campbell
Why do you think interest rates will go down?
Miles Pitcher
I love talking about this.
I think it’s really important for people to understand what’s going on and what to look for.
We’ll use historical data to help improve this.
The first thing we need to remember is that inflation is the enemy of mortgage rates. As inflation goes up, so do the mortgage rates. And it has happened. That’s why we’re at 6.5% interest rate (7% on date of publication).
The Federal Reserve’s primary purpose is for price stability, which is getting inflation under control. And that is exactly what they’re doing.
This is why they raised the federal funds rate to slow down the economy, to bring inflation down. The consequence of that is that it causes a recession.
Most experts define a recession as two-quarters of negative GDP (Gross Domestic Product).
We are, in fact, hitting on our second quarter of negative GDP right now. And so we are in a recession right now.
If not, it will happen in the next quarter or so. And I think most people out there believe that a recession is coming.
Recessions are different from a housing crisis. But what we see historically, and we have 100% accuracy on this, every time in history that there’s been a recession, interest rates, from where they start the recession to where they end the recession, are always lower.
We see that as inflation starts getting under control, we enter into this recession, the economy starts slowing down, and interest rates are going to fall back down.
How far down?
We don’t know.
Do I think we’ll ever hit the twos again? Probably not.
For us to get down to low fives, back to the fours and maybe even high threes, very reasonable for it to happen and actually happen. But we believe as early as even spring next year we’ll start seeing rates come back down.
Kathy Campbell
So with 6.5% interest, when do we say, okay, it’s time to refinance?
What rate would buyers need to watch for?
Miles Pitcher
That’s a really good question.
So my rule of thumb is looking for a .5% improvement, but we take it case by case.
And here’s exactly what I look at. . .
We either try to help our clients reduce or eliminate the refinance cost. It’s a strategic refinance plan, is what we call it.
The essential question is . . . what are we going to be able to save you monthly?
We divide that by any cost of that loan to do the refinance and figure out if it takes 3 months, 6 months, whatever it is, to break even on the refinance. And as long as I can help a client have a break-even shorter than one year, we are good to go on it.
Kathy Campbell
Very helpful info. Thank you, Miles. I appreciate your time.
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If you’re in the market for a new home or are thinking about selling your current home, please call me anytime to discuss your goals contact me.
