By 2022, financial advisors and their clients have become accustomed to the relatively low mortgage rate environment. In fact, until earlier this year, the average 30-year fixed mortgage rate has remained below 5% since 2010 (he has been below 7% since 2001). But as the Federal Reserve attempted to raise interest rates this year to combat inflation, mortgage rates hit levels not seen in more than 20 years, with 30-year fixed mortgages set to expire in October 2022. reached an average of 6.9%, doubled from 3.45. % average rate for January.
The plight of today’s first-time homebuyers in the face of higher mortgage rates has received a lot of media attention (unsurprisingly, the 30-year fixed mortgage rate for median U.S. home prices monthly payments have increased by almost $1,000 over the past year). ), higher interest rates could also impact current homeowners’ financial planning calculations. For example, rising interest rates have increased borrowing costs for those looking to leverage their home equity through a home equity loan or home equity line of credit (HELOC). .
At the same time, higher interest rates may present opportunities for some individuals. For example, those interested in taking out loans within the family can generate more income from the higher applicable federal interest rates (while loan recipients benefit from lower interest rates). Additionally, many current homeowners may have mortgages with interest rates that are lower than the “risk-free” rates of return currently available on U.S. government debt. Current homeowners who have can consider downsizing and buying a smaller home for cash. This eliminates the need to take out a mortgage at current interest rates and may benefit from a less competitive housing market.
Ultimately, the takeaway is that the rising interest rate environment will not only affect first-time homebuyers, but also current homeowners. Additionally, because a home is a consumer good (often with an emotional attachment) and can be viewed as an asset on a homeowner’s statement of net worth, advisors help clients explore their home-related goals and financial You can also add value by helping assess the situation. The trade-offs of using a mortgage to buy a more or less expensive home in a higher interest rate environment (or if buying a home with cash is appropriate, if you have the means!). Whether you are an aspiring first-time homebuyer or considering downsizing for retirement, our advisors can help clients navigate the higher mortgage rate environment by increasing value. can be added!