Looking for an Option to Increase Your Buying Power?
Hello Hampton Roads,
Thanks for Reading,
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New Homes Were Listed in Virginia Beach and the Surrounding Cities This Week - See Them All Here!
I was speaking with a buyer of mine this week who was worried about rising interest rates becuase he hadn't found a home yet and was asking about suggestions to help. This is a common situation faced by many home buyers today so I thought I'd share an option to consider.
Rising interest rates cut into a buyer's purchasing power and readers familiar with me will know that I've written that a 1% increase in mortgage rate lowers purchasing power by about 10%. Last year rates in Hampton Roads were commonly seen in the mid 3.5% and today they are around 4.5% and when you add this rate increase on top of a low inventory environment, it's understandable to feel concerned if you're a home buyer.
There'a saying that the cure for high interest rates is high interest rates which I believe is true but this also takes time for the market to adjust and the timing make not work for you. For those of you in the market now, waiting for an undefined period of time will not work so here's a financing option to considerr-- choosing a 5/1 adjustable rate mortgage (ARM) vs a 30 yr fixed.
The 30 yr fixed rate loan has been the norm for a while but as interest rates have risen, the rate for the 5/1 ARM is substantially lower. The 5/1 ARM is a fixed rate for 5 years and then it adjusts every year for next 25 years.
According to recent article on Next Adviser, the averages for 30 yr fixed and 5/1 ARMS are:
- 4.56% average for 30 year fixed rate mortgage
- 3.26% average for 5/1 ARM
Now this option won't work for everyone but it may be a good option for some! For example if you are purchasing a home and know that you will be moving within the next 5 years for relocation or plan to move up to a larger home then this option could save you a lot of money. No one knows where rates will be at the end of 5 years but if you choose this option you want to make sure that if interest rates are higher after 5 years and you choose to keep the home that you can afford the higher payment. . Talk with your lender aobut different financing options that would work best for your situation.
If you have any questions and want to talk about your home buying plans, feel free to contact me. Also, I'm hosting an educational and free home buyer's webinar on Thursday April 21st at 7:30pm. You can register at https://freehomebuyerswebinar.com. I will be talking about the best way to buy a home in today's market; please share the link with anyone you know who may be looking.
Thanks for Reading,
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New Homes Were Listed in Virginia Beach and the Surrounding Cities This Week - See Them All Here!
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