I. Interest-Only Loans Are Overrated Because They Come With Higher Rates That Offset The Benefits.
A loan officer recently tried to entice a borrower away from us with an interest-only loan. The problem was that the rate was 7.99%. Our rate for a fully amortized loan for that borrower was 7.25%.
$100,000, INTEREST-ONLY, at 7.99% yields a payment of $666. $100,000, FULLY AMORTIZED, at 7.25% yields a payment of $682. (Interest-only saves the borrower $16 per $100,000 borrowed.)
A slightly smaller payment is hardly worth a rate that is 3/4% higher. Particularly when you take into account that interest-only loans don’t amortize (pay down principal).
We have many interest-only loan options, but we rarely push them because the rates are often much higher.
II. Solid Proof That 2-1 Buydowns Move Listings!
We got a call on Sunday from a very frustrated listing agent.
He was so frustrated because his listing had been sitting for months, and his sellers were very upset – particularly because a very similar home had gone on the market and had gone pending very quickly.
The agent had visited the home that went pending so quickly only to find one of our lender-paid 2-1 buydown flyers. And that is why he called us.
I know this sounds like BS marketing (too “on the nose”), but it is 100% true. My wife, Heejin, took the call, and she’d be happy to chat about the call or the efficacy of our 2-1 buydown offer with anyone.
III. What Happened To The Dreaded “Mortgage-Rate Lockdowns?”
We were told time and again that “mortgage rate lockdowns” were going to be the demise of residential real estate – keeping the industry depressed for many years if not decades.
Mortgage rate lockdowns, once again, refer to a situation where homeowners are reluctant to sell their homes because they are “locked in” to a low mortgage rate – often under 4%. The world was convinced homeowners would never sell a home with a sub-4% rate if they had to buy a new home in a 7% rate environment.
Welp…so much for that.
The first cracks in lockdowns came from life events. We’ve had numerous lock-downed borrowers move because of job transfers and expanded families (new babies), for example.
But now we’re just seeing inventory significantly increase all over the country for all kinds of reasons.
My point: The doom and gloom scenarios that we see all the time seem to change much faster than we expect.
