Page 12 - July 2023 Issue.indd

DOLLARS AND SENSE by Tolbert Rowe

Historically Low Interest Rates is Major Reason for Low Inventory

It range, buyers have become conditioned is no longer an option and folks are
is an accepted fact that a major
reason for the extremely low
by the higher interest rates of today.
making improvements or upgrades to
inventory of residential real
estate available for sale is due to the This acceptance of higher rates has the current homestead. Keep what you
forced most buyers to lower the price
got and modify for what you want.
historically low interest rates we they are willing to pay, making homes
experienced in 2020 and 2021. Anyone priced at the lower end of the market Once fixed rates started climbing
through 5%, then 6% and peaking at
considering selling their existing home very popular, especially those in good 7%, home equity loans became the new
and moving up quickly realizes that the condition. and exciting lending product promoted
higher interest rates we are currently
But for those who were looking to by banks, credit unions and savings
experiencing result in payments that
buy when rates were low, the increase and loans. With the volume for first
can be significantly higher than what

they are currently paying. in rates means an increase of 40% to mortgages declining to 2013-2014 levels
50% in monthly payment. Th e $1,054 and refi nancings nonexistent, the next

A borrower with a $250,000 mortgage at payment on $250,000 loan at 3% would best thing for a bank to offer is HELOC
3% has a principal and interest payment be $1,580 at 6.5%, an increase of 50%, (Home Equity Line of Credit).
of $1,054. To acquire a mortgage so many potential buyers ran to the Home Equity Lines of Credit or
with the same principal and interest sidelines.
HELOCS act like a credit card that is
payment at 6.5% you could borrow only
What about those homeowners who secured by the equity you have in your
$165,000. For those considering selling
were thinking about selling and buying home. The more equity you have the
that means you need at least $85,000
a move up home? Motivation to sell higher the credit limit can be. That
additional down payment (equity) just quickly evaporated as potential sellers credit limit is 85% of the appraised value
to match your current payment.
adjusted their plans from selling and of your home minus the current balance
It is estimated that 85% to 90% of moving to staying put. Finding a on your fi rst mortgage.
homeowners with mortgages are satisfactory home in a market of limited Here we go with another example:
paying interest rates of 3.75% or lower, possibilities with higher payments was
depending on the data source. Over $5 turning the dream of buying a bigger, Assume your home’s value is $350,000
trillion worth of residential mortgages nicer home into a nightmare. and you have a first mortgage with a
were refinanced during the 2-year current balance of $200,000. 85% of
If you currently own your home, have
period from April 1 of 2020 at the good equity and a desire to move on, $350,000 is $297,500 minus current
beginning of the pandemic, to March balance of $200,000 leaving amount
finding the home of your dreams has

31, 2022, which is when the Fed began available for HELOC of $97,500.
become somewhat of a nightmare.
increasing interest rates.
So much so that rather than give up This becomes the credit limit that you

Even though mortgage rates have nearly their current home, and the low-rate can access and use for any reason,
tripled from a low point in the mid 2% mortgage that goes along with it, with home improvements being the
homeowners are staying put. Selling primary and most prudent reason.
Debt consolidation is another use for
HELOC funds, although marginally
“Your Mortgage Consultant Since 1985”

beneficial when HELOC interest rates
Purchase or Refinance are so high. I will address later.
The interest rate on a HELOC is not
fixed and fluctuates based on the prime

rate, which is currently at 8.25%. To this
index is added a margin of .5%-1%.
The prime rate is directly impacted
115 E Dover St. Ste 3 - Easton, MD by the actions of the Federal Reserve
tolbert@baycapitalmortgage.com C. Tolbert Rowe, which has increased the prime rate ten

www.baycapitalmortgage.com NMLS Vice President/Lending times since March of 2022. They did not
182844
increase rates at the June 14 meeting,
410-819-3005 / cell 410-310-3520 choosing to take a pause to monitor the
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