Posted: February 22, 2024 | Source: Craig Wales
Over the last few years, a real estate truism has popped up that you may have not heard before: “date the rate, marry the house.” As mortgage rates have gone from historic lows during 2020 and 2021 into higher territories starting in 2022, this phrase has been repeated over and over by real estate agents and other housing experts since.
But what does it mean to “date the rate, marry the house?” And is this a foolproof strategy?
Join us as we dig into what this saying means, and how it can help you on your homebuying journey. Or, if you’re ready to start dating, let us connect you with a loan officer about today’s rates.
Date the Rate, Marry the House Meaning
This saying is based on the idea that buying a home is a long-term commitment, but the terms of your mortgage can be revisited. Essentially, you “marry” a house by looking for a property that has the elements that will matter to you for years. Then you “date” the rate by getting the best rate you can when you purchase, then “break up” with the rate by refinancing when it makes sense.
What it means to marry the house
The term marriage suggests a lifetime commitment, “for richer or poorer, through sickness and health, ‘til death do us part” as the common ceremony goes. This is similar to how many people approach buying a home. According to a recent report from Redfin, the average homeowner stays in their home for 13.2 years , which is not quite a lifetime, but is still quite the commitment.
It makes sense that people are staying in their homes for such a long time. Not only is there the financial commitment, but with fewer and fewer homes coming onto the market is some parts of the country, it can be hard to find another home that satisfies your needs as well as your current home.
That’s why when you find a house that you fall in love with, you shouldn’t hesitate to “put a ring on it,” as it were and make an offer. If you don’t it may not be on the market long enough to allow you to wait for rates to come down. And you may have a hard time finding another home that ticks all of your boxes as well.
What it means to date the rate
The term “dating the rate” really just refers to all of the financing options that a lender like our partners at OriginPoint can offer you. While national average rates may go higher, you have more than one option that will allow you to bring down your mortgage rate, at least for a period of time. And there’s always the option of refinancing, which we’ll explore in more detail below.
But first, here are a few of the loan programs that OriginPoint loan officers can offer that will help you possibly get a lower rate.
Adjustable Rate Mortgages (ARMs)
An ARM is a type of mortgage that offers you an initial period at the beginning of your loan where the rate is fixed lower than the national average rate at the time you close your loan. Then after that period is over, the rate varies, oftentimes increasing so that you’ll be paying more than you were during that initial period. Typically the fixed rate period lasts 5, 7 or 10 years.
Temporary Buydown
A temporary buydown reduces your interest rate on your mortgage for the first year or few years of your loan. The seller contributes to your loan to lower the rate during the initial period, and then payments go back up after that initial period is over.
OriginPoint offers five types of temporary buydowns. The most common is called a 2-1 buydown, but there’s also a 3-2-1 buydown, 1-1-1 buydown, 1-0 buydown and 1.5-0.5 buydown. Their names correspond with the periods of lower rates—so a 2-1 Buydown offers a 2% lower rate for 1 year and a 1% lower rate in the second year before the rest of the mortgage reverts to its original rate.
Both of these options change your mortgage rate over a period of time, which reflects the uncertainty of your dating life. But refinancing your mortgage is usually what people are referring to when they say “date the rate.”
Calling it quits on your rate
When you refinance your mortgage, it’s kind of like breaking up with your rate and getting a new, better rate. A refinance (or “refi” as it is commonly referred to) is simply a way to replace your original mortgage agreement with a new contract that contains updated terms and rates that are more attractive. That means if rates come down since you closed on your initial mortgage, you can refi into a lower rate and potentially pay less each month.
You can also refinance to shorten your loan term, change from a variable rate to a fixed rate and even take out cash to use towards renovations or consolidate debt. Of course, there are always some caveats. Even if the savings appear worthwhile at current interest rates, you’ll want to take into consideration all the paperwork, time commitment and associated costs involved in a refi.
Is it worth it to refi?
When deciding if a refi is right for you, it’s important to do the cost/benefit analysis of switching to a new loan. This involves figuring out your break-even point.
The break-even point is the point in time when you recoup the costs you had to pay to obtain the refinance. It’s typically a couple years down the road, but if it’s too many years into the future, then you may not make your money back before you decide to sell your home or pay off your loan.
So, as an example, if you save $100 a month with a new mortgage, but it will cost you $3,000 in closing costs, your break even point will be in 30 months.
Refinances tend to make more sense if you’re planning to stay in your home for a while. The shorter the time you live in your home after refinancing, the less opportunity you have to pay off the associated costs rolled into your monthly payments and produce the intended savings.
Being smart while dating the rate
The “date the rate, marry the house” strategy works well when rates go down, but that can be hard to predict. Mortgage rates are hard to predict and can rise and fall over the years. It’s important to know that you’ll be able to afford your mortgage payments when you buy the home, then wait for the right mortgage rate to come along to improve your situation.
That’s why it’s so important to work with a local lender who’ll be able to help you make the best decision for yourself. Because just like dating and marriage, it’s important to mortgage with someone you trust.