As the industry adjusts to the Federal Open Market Committee’s announcement that it is raising the federal funds rate for the first time since June 2006, homebuyers also need to asses what this means for them.
Unlike most people who work, live and breath housing, they are new to the idea, figuring out how this will impact their decision to buy a home now.
Mat Ishbia, president and CEO, United Wholesale Mortgage, explained in a Q&A how homebuyers should interpret the news, along with what lenders should be cognizant of when talking to potential borrowers.
HousingWire: What should potential homebuyers make of the rate hike?
Ishbia: Homebuyers shouldn’t let the rate hike impact their planning too drastically. It’s not something that should scare them out of purchasing a home. Any additional rate increases will take place gradually over time – there won’t be some kind of drastic spike that goes into effect on one particular day. While interest rates do obviously play a role in the expenses related to buying a home, it shouldn’t be the primary focus of a purchaser – they should concentrate more on the maximum monthly payment they can afford, and then prioritize their budget around that number instead. Speaking generally and depending on the price of a home, a 0.25% interest rate increase might only lead to a monthly payment that is $30 higher, so a rate hike isn’t something that should scare away potential homebuyers.
HW: Should they buy or wait?
Ishbia: Consumers should definitely buy instead of waiting. Any additional increases in rates will happen gradually over time, so by waiting, homebuyers would only be giving the rates a chance to continue increasing. I think the purchase business is going to increase in 2016, and consumers that are on the fence about buying a home should make a move.
HW: What advice would you give to lenders when they are talking to consumers about rising rates?
Ishbia: Lenders should coach potential homebuyers to focus singularly on the interest rates. While interest rates shouldn’t be ignored, the “doom and gloom” tone that consumers might hear from the media isn’t to be taken at face value. Lenders don’t control rates. The trend is that the rates will go up, but nothing significant. Of course the rates aren’t as low as they have been previously, but at the end of the day, they’re still pretty low.
No matter what interest rate a lender is offering a consumer, it’s the responsibility of consumers to do their homework and determine the true monthly payment they can afford to spend, and to choose a mortgage professional to review the dozens of loan program options that are available.
HW: Are there any concerns you have about the impact of rising rates on the market?
Ishbia: No, I’m not very concerned for the overall strength of the market. I don’t think higher rates will create a major negative impact; in fact, I think a rate increase will have a positive impact on the mortgage industry. Consumers that have been unsure about whether to purchase or not will now be more likely to make a move. Rate increases will likely cause a decline in the refinance business, but lead to purchase business and adjustable rate mortgages (ARMs) being a bigger part of business for loan officers. You’ll see more responsible ARMs, not the kind that negatively affected the industry in the past. Moving forward, it will very important for people in the mortgage industry to educate themselves on the benefits of ARMs and to align themselves with real estate agents.
HW: Is there anything else you would like to add?
Ishbia: With the rate increase, it will be more important than ever for homebuyers to research their options and shop around for the best possible options. Generally speaking, mortgage shopping is something an individual or family might do once every three to 10 years. Given the volatility in the marketplace, it’s helpful for consumers to work with mortgage brokers – they are mortgage industry experts, can give great recommendations for client-specific scenarios, and have access to wide variety of lending options around the country. Homebuyers shouldn’t limit themselves to the pricing offered by the bank down the street. There will always be a lender out there with lower pricing and faster closing time, and mortgage brokers are the best way to find them.