Mortgage Rates Are Rising. That Could Actually Make NOW a Better Time to Buy

Everyone is talking about mortgage rates. Treasury yields have surged, mortgage rates have moved back above 7%, and now we're seeing headlines asking whether 8% mortgage rates could be next. Naturally, some buyers are thinking, “Maybe I should just wait.” But before you put your home search on hold, there is something many buyers don't realize: the interest rate you see in the headlines is not necessarily the interest rate you have to accept.

A Soft Seller's Market Can Be a Strong Buyer's Market

Think back to the crazy real estate market a few years ago. Find a house you loved and you might have been competing against five, ten or twenty other buyers. Old roof? Take it. Old air conditioner? Take it. Repairs needed? Take it. Seller won't contribute toward closing costs? Too bad. Buyers often had very little negotiating power because another buyer was standing right behind them.

That is not today's market. Inventory has increased in many areas, homes are taking longer to sell and sellers have competition. That gives buyers leverage. Depending on the property and seller's motivation, you may be able to negotiate repairs, a new roof, a new air conditioning system, closing costs or other concessions. But there's another concession that could potentially be worth far more over time: a lower mortgage rate.

Ask the Seller to Help Buy Down Your Interest Rate

Instead of simply asking for another $10,000, $15,000 or $20,000 off the price, what if some of that negotiating power could be used toward your financing? A seller concession may potentially be used to help pay discount points that reduce your mortgage interest rate, subject to lender and loan program requirements.

There are temporary buydowns, such as a 2 1 buydown, and there are permanent rate buydowns. A permanent buydown uses discount points to obtain a lower fixed interest rate for the life of the loan. One mortgage point generally costs 1% of the loan amount, although exactly how much it reduces the rate varies by lender, borrower, loan program and market conditions.

What Could That Mean on a $750,000 Mortgage?

Let's use a hypothetical $750,000, 30 year fixed mortgage and illustrate the difference between 7.37% and 6.37%. At 7.37%, principal and interest would be approximately $5,178 per month. At 6.37%, it would be approximately $4,677 per month.

That's approximately $501 less every month and more than $6,000 per year. That's why I call a permanently lower interest rate the gift that keeps giving.

This is an illustration, not a promise that $10,000 or $20,000 will reduce a $750,000 mortgage by a full percentage point. Discount point pricing changes with the market, lender, loan type and borrower, so buyers need an actual quote from their lender. But that's exactly why this conversation should happen before you write the offer.

Builders Are Already Using This Playbook

This isn't anything new. New home builders have been using financing incentives and mortgage rate buydowns to help move inventory. So why shouldn't a resale buyer explore the same strategy?

When I'm negotiating a resale purchase in today's market, I don't want to look only at the price. I want to look at the entire transaction. What does the house need? What will the seller contribute? What concessions does the buyer's loan allow? Could some of that money be better used toward repairs, closing costs or lowering the buyer's interest rate?

Knocking $10,000 off the purchase price sounds great, but on a 30 year mortgage it may make a relatively small difference in the monthly payment. Using that negotiating leverage differently could potentially create a much larger financial benefit.

What Happens If Everybody Waits for Rates to Fall?

This is the other side buyers need to consider. What happens if mortgage rates eventually fall substantially and thousands of buyers who have been sitting on the sidelines decide it's finally time to buy? More buyers can mean more competition, fewer seller concessions, multiple offers and potentially bidding wars.

Nobody knows exactly where mortgage rates or home prices will be next year. That's why trying to perfectly time both can be difficult. Instead, look at the opportunity sitting in front of you today.

Don't Just Shop for a House. Negotiate the Entire Deal.

Today's market may offer buyers something incredibly valuable: leverage. Ask about the roof. Ask about the air conditioner. Ask for repairs. Ask about closing costs. And absolutely ask your lender and Realtor whether negotiating a seller contribution toward a mortgage rate buydown makes sense.

Don't let a scary mortgage rate headline automatically convince you that this is a bad time to buy. Sometimes the market everybody is afraid to buy in creates the opportunities that disappear when everybody wants to buy again.

The question isn't simply, “What are mortgage rates today?” The better question is, “What rate and overall deal can I negotiate today?”

Vincent Arcuri | Tampa Bay Realtor Since 1991 | Helping Buyers and Sellers Make Smarter Real Estate Decisions for 35 Years

Payment examples are for illustration only and include principal and interest only. Property taxes, homeowners insurance, mortgage insurance, HOA fees and other expenses are not included. Interest rates, discount point pricing and seller concession limits vary by borrower, lender and loan program.