Mortgage Rates

WHAT HIGH RATES AND LOW RATES ACTUALLY BUY YOU

Every level of this number hands somebody a card.

Rates get talked about as though low is good and high is bad, and if you stop there you will make a worse decision than you had to. Here is what each end of it does, in both directions.

• When rates are high. Your payment buys less house. There is no way around that arithmetic, and I am not going to pretend otherwise. What comes with it is the part people miss: less competition, sellers who will negotiate, more concessions, and an inspection list a seller is more likely to fix than argue about. When money is expensive, the buyers who were stretching get filtered out of your way.
• When rates are low. Your money buys more house, and more people can qualify, so you get company. More competition, more offers over asking, fewer repairs conceded. The cheap money is real. So is the crowd.
• If you are selling. Low rates widen your buyer pool. High rates shrink it. That is the honest headline, and it is why I care about this number before I will talk about price.
• If you are buying and it feels bad. You can pay points to buy the rate down, or you can accept the payment and plan to refinance later. Both are real and neither is free, and a refinance is not a promise. I would rather you buy a house that works at today’s number than one that only works if a future number shows up.

NOBODY CAN TIME THIS, INCLUDING ME

Waiting for the bottom is a position, and it has a cost.

Some version of “should we wait for rates to come down” lands in my inbox most weeks. I understand the instinct completely, and I cannot answer it, because nobody knows. Not me, not the economists who get quoted, not the person on the news who says the word headwinds and then looks confident.

Here is what waiting actually is. A bet that the rate will fall further and faster than the price of the house you want will rise, in a market where the two are connected. Lower rates mean more buyers chasing the same houses, and more buyers chasing the same houses is what moves prices up. People who sat out waiting for cheaper money did not get the house cheaper. They got the same house with more competition.

You marry the house. You date the rate. That line is only half true, and I want to be honest about which half: you can refinance a rate, and you cannot refinance the street, the school or the commute. It also costs money to refinance, and the number has to cooperate when you do it. I could be wrong about where rates go next month. What I am sure of is that the house you can afford today is knowable and the rate eighteen months from now is not.

THREE QUESTIONS, AND NONE OF THEM ARE ABOUT THE RATE

The rate is the last question, not the first.

When somebody asks me whether now is a good time to buy, the rate is where I expect that conversation to end, not where it starts. Three things actually decide it, and you can answer all three at your own kitchen table tonight.

• Do you have the money? Not only the down payment. Closing costs, moving, and a reserve you do not touch afterwards. Something in a new house always wants attention in the first few months. The question is whether that becomes an annoyance or an emergency.
• Are you stable? Income you can count on, a horizon measured in years rather than months, and no move already pencilled in for work. Buying is expensive to undo, and selling again in two years usually costs more than the rent you meant to save.
• Does it make sense for your life? A payment you can make while still living. A house whose problems you can live with. A commute you can stand on a Tuesday in February. If those are yes, the rate is a detail you can work with. If one of them is no, a better rate will not fix it.

That is the whole test. It is not exciting, and it is the one I would use on my own money.

ABOUT RENTING, WHILE WE ARE HERE

A rent payment and a mortgage payment look similar and are not.

I will put this as plainly as I can, because I have watched it work out for people in both directions. When you rent, that money is gone the day it leaves your account. There is nothing to show for it afterwards. No ownership, no equity, no say in what happens to the place you are living in.

A mortgage payment also leaves your account every month, and part of it is interest, which is also gone. You should know that going in. The difference is the other part, which reduces what you owe. That part you keep. So do the roof, the decision about whether you stay, and the ability to change the kitchen without asking anybody’s permission.

There are also rules when you rent, and they belong to somebody else. A landlord decides whether you can keep the dog, paint the wall, hang shelves, or renew at all. That is a genuine cost, even though it never appears on a statement. Freedom is hard to price and easy to miss once you have had some.

And now the other side of it, because I am not going to stand here and pretend. Renting is flexible. If you might move in two years, if your income is uncertain, if you have not got the reserve to replace a furnace in January, renting is the more sensible answer and I will tell you so to your face. A house is not a moral achievement. It is a large, expensive, illiquid commitment, and the people who get hurt are the ones who made it at the wrong moment for the wrong reasons.

WHY YOUR RATE WILL DIFFER FROM THIS ONE

Four things move your number off the board.

• Credit. The score bands are the largest single lever, and the gap between one band and the next is usually wider than anything you can negotiate.
• Down payment. Below twenty percent you normally add mortgage insurance. That is a real cost even when the rate itself looks identical.
• Points. Paying points buys the rate down. It is a trade, not a discount, and it only pays off across the years you actually stay.
• The property and the lender. Condominiums, rural properties and non-warrantable buildings all price differently, and lender fees vary by more than most people expect.

WHAT I DO WITH ALL OF THIS

I check the board, and I say so when it changes the answer.

When I price a listing, the rate is part of what a buyer can actually pay, so it belongs in the conversation rather than in a footnote. When a pre-approval is a few months old, it is usually worth re-running before you write an offer, because the number behind it has probably moved.

What buying with me looks like, or what selling looks like.