Like the rest of the financial markets, mortgages are volatile right now. In the past few months, mortgage rates hit a high of 6%, a rate not seen since 2008, and then they retreated to 4.99%. Last week they ended at 5.133%, which still seems high when you consider that last year at this time they were at 2.86%. Here are three things you should know about mortgages right now:
1. Adjustable-rate mortgages are a great way to get a lower rate. They can be up to a full percentage point lower than the 30-year fixed rate. While rates are considered historically low, a percentage point can impact affordability for many buyers. If you have a rate of 4%, every $1,000 you borrow will result in a monthly payment of $7.39. If your rate is 5% that jumps to $7.90 per month. A difference of less than fifteen cents doesn’t seem significant until you attach that number to the cost of an average apartment.
In New York City the median price of a home currently stands at about $1,300,000. Taking a mortgage at 80% of the cost of the apartment gives you a mortgage of $1,040,000. If your rate is 4%, your monthly mortgage payment is $7,686 and if you have a 5% rate, your monthly payment jumps to $8,216 per month. An additional $530 potentially paid out every month makes it worth investigating an ARM.
2. While it is true that mortgage rates have been higher in the past, housing prices were lower during these times to offset those higher rates. There is a limit to how much buyers can afford to pay on a monthly basis and rising mortgage rates put downward pressure on home prices. Right now, prices in New York City have not moderated significantly to meet the rising mortgage rates. Sales volume in the month of August has slowed, which is typical of this time of year. But we are starting to see more sellers reduce their prices. A clearer market trend will emerge in the coming weeks as more deals are done. The remainder of 2022 is likely to see serious sellers continue to adjust prices if mortgage rates continue at the current rate.
3. Should you lock your rate? In an environment where rates are changing every day, it behooves you to stay in close contact with your mortgage provider. Once you have a signed contract, you may choose to lock that rate. The tricky part in New York City is not having a set closing date. If you do not close during the time of your rate lock, it could cost you money to extend it. If you don’t extend, you could end up with a much higher mortgage rate. To protect yourself, make certain your mortgage provider and real estate agent are in close communication regarding the timing of your closing, so you and your team make the best decisions.