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What Higher Mortgage Rates Mean for Home Sellers
Monday, February 19, 2018
With the new tax code and shifts in theeconomy occurring, some experts are predicting an increase in mortgage interestrates during the coming year. While much of the conversation focuses on howhigher rates would impact buyers, what about the sellers? Here are a couple ofways those higher rates could make a difference for everyone involved.
When a homeowner has decided to call a real estate professional and say “Sellmy house now!”, incrementally rising interest rates could actually work in theseller’s favor. Assuming the buyer believes that the rates will continue toincrease over the next year or so, waiting could mean paying thousands ofadditional dollars over the life of a mortgage. Choosing to buy now meanslocking in a fixed rate and not having to worry about further increases. Evenif the buyer goes with a variable rate mortgage with a fixed term of 7-10years, there is always the possibility of converting it to a fixed mortgagebefore the term is up.
For the seller, the urgency that buyers feel to act now could mean the propertyis purchased now instead of remaining on the market for months. Since there isa desire to buy immediately, the chances of receiving the full asking price aremuch higher. In other words, those increasing mortgage rates may be all themotivation a buyer needs to go ahead and finance a home purchase now ratherthan waiting for six months.
While higher rates could mean qualified buyers move quickly to secure financingand lock in the lowest possible rate, a trend of increasing interest ratescould push some potential buyers out of the race. The issue tracks back to oneof the factors that lenders look at closely; the debt to income ratio.
Lenders want a reasonable assurance that debtors will make timely payments onthose mortgages. It’s not just about how much they earn each month. It’s abouthow much of their income can reasonably go to making the mortgage payment. Ifthe interest rate increases the amount of the monthly payment by as little as$50.00 a month, that change could be just enough for lenders to feel approvingthe application is too risky.
In this scenario, the seller may end up with a smaller pool of potentialbuyers. Depending on the location of the property, the asking price, and whatsimilar homes are selling for in the local market, an upswing in interest ratescould mean the house is on the market for weeks or months before a buyer withan excellent debt to income ratio expresses interest.
Before you call an agency and tell them “Sell my house!”, take a good look atthe current market trends and how they relate to residential properties. Talkwith a professional about what to expect in terms of setting an asking priceand entertaining offers. That information will help you decide if now is thetime to place the home on the market, or if you should wait.