An adjustable rate mortgage or ARM can be appealing because the introductory interest rate is often lower than the current rates for fixed-rate mortgages. For example, the current rates for 30-year fixed-rate mortgages are just above 5% right now, the highest they have been since late 2018. The initial rate on a 5/1 ARM loan is just above 4% right now.

The 5 in 5/1 ARM loan represents the introductory term for the interest rate. After that, the 1 in the 5/1 represents how often the interest rate can change. Depending on the lender and the loan, you can have a 3/1, 5/1, 7/1 or 10/1 adjustable rate loan. If the market rate is higher than the initial rate, your mortgage payment will go up after that initial introductory period is over, if it is lower, then your mortgage payment will go down, if it is the same, your payment will remain unchanged. This means that an ARM loan can be risky for many people, especially people on a fixed income. There are generally caps on the rate jumps at the adjustment period, and caps on the rate for the life of the loan so your payment won’t be able to grow exponentially.

So, ARM loans can be really attractive for buyers who expect to be selling before the introductory period is over. They can also be perfect for a buyer who expects to refinance before their rate adjusts. But, since you can’t predict future market conditions, you may be stuck with a mortgage that is unfavorable to you and you can’t get out of it. Generally, if a home is more expensive, the savings on the rate during the introductory period could make the risk worthwhile. For lower priced homes, the risk may outweigh the benefit so a fixed-rate mortgage might still be right for you.

For a recommendation for a great mortgage broker, or to schedule a showing on a home in the Lake Wylie area, call us at 803-831-8588. You can view current listings and create custom searches on our website here.

Mortgage interest rates are now averaging 4.42% (as of March 24th, 2022) for a 30-year fixed-rate mortgage. This is up from 4.16% last week and way up from the historic low around 2.75% last June.

What causes the rise? Some of this rise is due to inflation. To combat inflation, the Federal Reserve has raised a key interest rate which typically signals a rise in home mortgage interest rates. The Fed is expected to raise that key rate again at least 4 more times during this year. This means that we could see mortgage interest rates rise further as the year progresses.

As a buyer, this means that you will see higher monthly mortgage payments. Higher payments can change your debt to income ratio and could change the amount of money a bank is willing to lend to you for a home purchase. This could cause some buyers to wait to buy until rates are more favorable. It can also cause you to change your home search to a lower price range.

For a seller, this could mean that you have to wait longer with your home on the market before you find the right buyer. This can mean excess carrying costs if you have already purchased your next home. We could also see home prices start to fall after the rapid rise they have had over the last few years.

For someone refinancing their home to get a more favorable rate, it is unlikely that your new rate will be better than what you have currently. Many people refinanced when rates were still below 3%. We will still see many people refinance, as a lot of home improvement projects such as additions, and remodeling are frequently paid for with a home’s existing equity. This will just make those projects a little pricier as mortgage payments will be larger in addition to paying for any construction.

For more questions on this topic or for information about buying or selling a home in the Lake Wylie area, call us at 803-831-8588. You can view current listings and create custom searches on our website here.

• Financing – Most buyers are going to need a loan in order to purchase a home. This provision makes sure that the buyer can get out of the contract if they can’t get a loan. This can be important if there is an abrupt change of employment or another factor that makes it impossible to secure financing. This is not necessary if you have an all cash offer.
• Inspection – this one could cost a buyer a lot of money if waived. This gives the buyer the right to bring in an inspector to look for defects in the home before purchase. There is typically another round of negotiations after inspection to resolve any large issues like HVAC or roof. In this competitive market, many people are waiving this, but big ticket repairs could cost you a lot of money after closing.
• Sale of Existing Home – this contingency allows you to get out of a contract if the sale of your existing home falls through. This is a risk to the seller of the home as the deal can fall through, but many people are waiving this provision right now to make a stronger offer. It can be risky to omit, but if you have a well qualified buyer for your home, it can be one of the least risky of the provisions to leave out.
• Closing Costs – In a buyers market, the seller may be willing to pay for closing costs for the buyer, but in today’s market, some buyers may be willing to pay their own closing costs or pay for some of the closing costs for the seller as an added incentive.
• Closing Date – the closing date is typically around 30-60 days after the contract date so that a buyer has time to line up financing. With an all cash offer, this can be as little as a week out. Quick timing can be attractive to buyers and sellers, though some sellers may want to lease the property back after closing so they have time to find their next home.

These are the most common conditions of a home sale. Omitting any of them from a contract can hurt the buyer or the seller. In this market where you want to stand out, it is important to know the level of risk you are willing to take on to win a multiple offer situation. Give us a call at 803-831-8588 and we can put together a winning plan. You can view current listings and create custom searches on our website here.