How to Navigate Shrinking Mortgage Affordability
As a mortgage broker, I’ve come across my fair share of difficult cases. One of the most pressing issues my clients face today is shrinking mortgage affordability with increasing interest rates. In this case, study, I will walk you through how I tackled this issue and helped my clients navigate the changing market.
The Problem
The clients I worked with were facing increased monthly mortgage payments due to rising interest rates. This made it difficult for them to manage their monthly budgets and put a strain on their finances.
The Strategy
My strategy was to help my clients understand that while the rising interest rates were making their monthly payments higher, it was also causing the housing market to adjust. I advised my clients to look at the overall picture and consider the total cost of ownership when purchasing a home.
The Solution
I explained to my clients that the housing market was changing, and prices were coming down to reflect the higher interest rates. This meant that they could now get the same home with the same monthly payment, as prices had adjusted.
I presented an example of the affordability of a home purchased in April 2022 versus one purchased in January 2023. I showed that while the rate was lower in April, the overall cost of the mortgage was higher due to the higher purchase price. Conversely, the rate was higher in January, but the overall cost of the mortgage was lower due to the lower purchase price. Sometimes, waiting for a higher rate and a lower price can be more affordable in the long run.
For example:
This was a house that was Purchased in April 2022 and was sold again in Jan 2023
April Purchase Price
$ 420,000
- $ 21,000 - Down Payment
+ $ 15,960 - default insurance premium
= $ 414,960 - total mortgage
$ 2158.10 monthly mortgage payment @ 3.89 5-year fixed rate
Current Purchase Price
$ 380,000
- $ 19,000 - Down Payment
+ $ 14,440 - Insurance premium
= $ 375,440 - total mortgage
$ 2117.80 monthly payment @ 4.69 5-year fixed rate
In this case, it would have been cheaper to wait for a higher rate and a lower price than a lower rate and a higher price.
Challenges Faced
One of the challenges I faced was getting my clients to look beyond the sticker shock of the rate and consider the overall monthly costs. I had to explain the changing market and show them how sometimes the higher rates can help in balancing the market.
Timeframe
It can take time for the market to rebalance and efficiently reflect the rise in interest rates. But I advise clients to be patient and persistent when it comes to navigating the ever-changing landscape.
In the end, my strategy worked, and my clients were able to navigate the changing market with confidence. By helping them understand the bigger picture and consider the total cost of ownership, I was able to mitigate the impact of rising interest rates on their finances. This case study is just one example of how Jordan St. Pierre-The Mortgage Centre helped clients find the best solutions for their unique financial situations.
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