What is “Marry the House, Date the Rate”?

“Marry the house, Date the rate” is a phrase that has been kicked around for decades with a recent resurgence. Now, however the phrase sparks controversy.

Jonathan Miller, President/CEO of Miller, Samuel Inc., a wise and avuncular appraiser, has been sharing his NYC housing wisdom since the late 1980’s. His “Housing Notes,” published at the beginning of this month, had a bold headline: “Date the Rate Is Bad for Housing Business.” He asserts that it is essentially a form of false advertising because none of us know what the future holds.

Is “Marry the House, Date the Rate” really a bad strategy if you are looking to purchase NYC real estate? The answer depends on your real estate investing goals.

What does the term “Marry the house, date the rate” mean?

It is a term real estate agents frequently use as a quick way to help buyers understand that their purchase price remains the same (the number you marry) throughout the time they own their property. On the other hand, their mortgage rate (the number you date) can change for the better in the future if they refinance.

You should not feel left out if the phrase is new to you. Mortgage rates dipped below 5% back in 2010 and stayed well below that level for over a decade, making the phrase irrelevant.

So, what caused the resurgence of the phrase? Low transaction volume. Higher mortgage rates last year led to falling transaction volume in Manhattan. It was down by 18-24% depending on which report you read.

While this catchy expression is not new, the controversy surrounding it is. The real estate business is competitive, so many agents quickly revived the old maxim in hopes of giving buyers an incentive to purchase. The message to buyers is that when mortgage rates have gone up and are likely to be coming down, refinancing in the future is an option which lowers your monthly housing bill.

Real estate agents also argue that when mortgage rates go up, housing prices go down and that is when you will find the best prices. Once mortgage rates start to decline, they naturally bring more buyers into the market, putting upward pressure on housing prices. While you can never change your purchase price, you can change your financing.

So, the reasoning behind the phrase is sound, but the problem today is it stems from a potentially misleading statement if you rely on refinancing to make your purchase affordable in the near term. The pain of the 2008 mortgage crisis, when borrowers overextended themselves thanks to the availability of easy credit, is still fresh in the minds of some top real estate agents, researchers, and journalists, making everyone more cautious.

No one wants to be responsible for encouraging a buyer to make a risky housing investment. Even in NYC, which is known to be a stable market, you can overextend yourself when buying a condo or townhouse.

On a recent Wall Street Journal podcast, “What’s News?”, Veronica Dagher, a personal finance reporter, said “I think we should know there is some risk to this strategy. A lot of realtors will tell you to date the rate and marry the house, but keep in mind it’s not always possible to refinance if you lose your job or there’s some other big negative change to your finances. That’s why buyers should focus on what they can afford now and not buy the house today with the assumption that rates will fall in the future.”

Don’t assume the market will go your way

Ms. Dagher is correct, there are pitfalls which must be pointed out — but there are also opportunities.

Let’s take a look at the pitfalls and opportunities in order to explore how this strategy might work for you. Recently I spoke with a finance executive who purchased a Harlem condo a few years ago with a 5-year Adjustable-Rate Mortgage (ARM) with the expectation rates would come down. The global financial markets took her down a different path than she had anticipated. Now, having passed on the opportunity to lock in a 3.5% mortgage rate she will most likely have a new rate in the 6-6.5% range.

Another client had the opposite experience as he doggedly followed the rates knowing exactly what rate made sense for him to refinance his Harlem townhouse. When the low rate popped up back in 2019, he grabbed it and locked in a long-term rate. Real estate is an illiquid investment so you must be playing the long game (7-10 years) and not assume the market will go your way.

If you are a first-time home buyer or looking to purchase in NYC for the first time, here are some considerations for a “Marry the house, Date the rate” strategy.

“Marry the house, date the rate” strategies

1. If you are buying today do not assume you will be able to refinance in the future as a means of making the purchase work in your budget. Think of the opportunity to refinance as a potential future bonus to create wealth instead of a strategy to afford your new home.No one wants to be house poor, especially in an expensive city like New York.

If you are purchasing a co-op in NYC there is almost no chance you will be allowed to overextend yourself. Co-ops generally look for a debt-to-income ratio of approximately 24-28% which can be lower than banks require to qualify for a mortgage! It is not a bad guideline even if you are considering purchasing a condominium or townhouse.

2. When an opportunity to refinance comes along, be aware that there are costs associated with refinancing. They can be 2-5% of the loan amount in overall fees. You are likely to incur origination fees, an appraisal fee and title insurance. Just like you shop around for a mortgage you will want to explore a number of sources for the best refinancing option.

More importantly, know in advance when it will make sense for you to refinance. You will need to calculate your potential savings.

A good rule of thumb would be to let rates settle below 5% if you are getting a mortgage today at the prevailing 6.5%. Determine how long it will take to recoup the upfront costs of refinancing through the monthly savings on your new mortgage payment. This is known as the break-even point.

If you plan to stay in the home beyond the break-even point, refinancing may be a worthwhile investment. Be aware that there are also future changes you cannot anticipate which may preclude you from refinancing. These interruptions might include changes in your employment and income or your property values. Either can eliminate the potential to refinance.

If you think of your home as an investment and handle your finances accordingly, there is some wisdom and potential opportunity in the, “Marry the house, Date the rate” saying.

There are also very real benefits to buying when demand is low due to higher mortgage rates. While other buyers are sitting on the sidelines there is less risk of a bidding war or losing out to an all-cash deal.

Lower demand for mortgages also gives you the opportunity to identify banks with incentives. Some of the ways you can lower your rate may include having good credit, relationship banking, or even purchase in certain census tracts. You never want to be in a hurry. The strategy is not a quick fix but rather a potential option in the future to increase your wealth.