Mortgage interest rates are rising, especially for second homes.
Ryan Haley, broker and owner of Atlantic Shores Sotheby’s International Realty, shares four ways you can combat rising mortgage interest rates and win in today’s competitive real estate market.
The following techniques will help you get a better interest rate.
1. Put Additional Monies Down
In the second-home world, a property can be purchased with as little as 10% downpayment. But, lenders are scrutinizing second-home purchases with low down payments. Thus, properties that only have 10% down are going to have a much higher interest rate. So, one way to get around that is to put additional monies down.
If you put 20% to 25% as downpayment, you’re going to find that you have a much better interest rate. This could come from cash. Another technique you could use is borrowing money or a cash-out refinance on your primary residence to take out additional funds to put that toward your second-home purchase.
2. Completely Refinance Your Primary Residence
Since Fannie and Freddie have not scrutinized primary residence and the mortgage interest rates on primary residence, you may be able to refinance your primary residence and pull out all of the cash that you would need to purchase the second home.
In essence, you’re paying cash for the second home and this puts you in a really good situation when it comes to negotiation. It makes you a cash buyer and that looks stronger than a financed buyer. At the same time, you get a lower interest rate in your primary, then you use the cash to buy that second home.
3. Pay in Points
Your third option is to pay points. You could pay points to bring your interest rates down. You would have higher fees upfront, but you would be able to enjoy a lower interest rate in the long run as you’re putting more cash out.
4. Diversify Your Assets
The last option is to diversify your assets. What does this mean? This means paying cash completely for the property. You may have cash sitting in a money-market account or bank account, or you might have money invested in another asset which could be stocks or bonds that you could reallocate. You can take the money out of that investment and put it in a new investment which, in this case, is real estate.
Here’s how you win with this strategy: If you look back in the last 50 years, real estate has outpaced inflation. And with inflation continuing to rise, one of the techniques that people are doing is investing in real estate to hedge against inflation.
Real estate is tangible—it is REAL. And unless it falls into a hole, you’re always going to have it. It’s also worth noting that real estate always has value and never goes to zero value, whereas an investment in another market could go to zero. You could invest in a business that could go bankrupt and you are completely out. This is why a lot of people when they’re trying to hedge against inflation are reallocating their investments, taking cash from another investment and putting it into something tangible like real estate.
These four strategies can help you win in this rising interest rate environment. As we head into the spring season, the competition is hot. There is strong demand, but we can assist you in finding the right property using our negotiation techniques to help you WIN just in time for the summer.