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Financial Tips

Rising mortgage rates - it's not all bad news for buyers

The good news about higher mortgage rates

If you had plans to buy a new home, or begin a much-needed renovation project, today’s higher interest rates shouldn’t make you put the brakes on your dreams. Your needs for your home and family don’t go away because mortgage rates went up.

Here are five points to consider as you scroll the real estate listings.

Are current rates truly high?
Jim McDiarmid, Stanford FCU’s VP of Residential Lending, offers up this reality check. “Looking at interest rates over the last 30 years, 5% is still very, very low. The 30-year fixed average is 8%. Financial industry analysts have always viewed 3% as temporary. As the market adjusts, consider that credit unions like ours currently offer nearly 4.6% returns on CDs. So a mortgage in the 5% to 6% range is very reasonable by comparison.”

Will you get less house for your buck? Not necessarily.
Higher interest rates do impact the housing market, but experts don’t agree on how much. It’s important to remember that the Bay Area housing market continues to offer a solid return on investment. Waiting for mortgage rates to drop means passing on an opportunity to invest. Jim reminds Stanford FCU members that “there is a saying: you date the rate and marry the house. Refinancing is always possible when rates drop. An adjustable-rate mortgage provides an accessible entry point, locking in a manageable monthly payment for now. Later on, before those rates might adjust, credit union members can refinance, without prepayment penalties, or even modify the rate without going through the refinance process.”

Stay put and renovate.
If more space is what’s motivating you for a potential move, building out your current home may be a more affordable option. A Home Equity Line of Credit (HELOC) can fund that extra bedroom and bathroom instead of a full move. Although building material costs have gone up too, compare those extra increases to a new mortgage.

Be clear on your motivations first, then compare your options.
Many homebuyers start their home search with one goal in mind and wind up in a very different place at closing. After 37 years in the mortgage industry, Jim shares a common pattern, “Many first-time homebuyers begin their search focused strictly on their monthly mortgage payments. Frustration happens when their budget and values aren’t in synch. I always encourage our members to compare your wants with what’s available to you right now, then work with your lender to make tweaks to your housing plan. Homeownership is almost always still within reach!”

Why the relationship with your lender matters.
Online mortgage calculators are strictly about the numbers, but a relationship with your lender makes a difference. Jim explains, “At Stanford FCU, we are all members of the same team. Our motto is to say YES to your success, and we mean it! That’s why we don’t charge excessive lender fees. We’ll help advise you on how you can improve your credit score to qualify for the best rates. We work together, in person or online, to offer you the best terms available so you can say YES to homeownership, and YES to your success!”

Click below to learn more about all stages of home buying and special benefits for members.

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