When mortgage rates fell in early-January, it breathed life into a huge swath of loan officers that were getting ready to leave the business.
It’s a terrible turn of events for homeowners and homebuyers. With everyone focused on rate, rate, rate, the lowest-of-the-low loan officers are in their natural habitat.
I am not knocking low rates, of course. I’ve just remortgaged my own home down to a lower rate. I’m just saying that low rates are only one piece of the puzzle.
Having a low rate carries tangible benefits in the form of a low (relative) payments. But, as a point of comparison, having a low mortgage rate combined with the right mortgage product is far more important to homeowners.
I won’t dispute that low mortgage rates are sexy but — no matter how you slice it — low mortgage rates do not create wealth for people without an outside influence.
Turning “low rates” into “long-lasting wealth” requires a well-planned mortgage strategy and solid execution. Unfortunately, homeowners don’t get that sort of approach from the low-rate guy that keeps asking for Good Faith Estimates from competitors so he can undercut them.
Plus, here’s a little secret about the mortgage industry: We all have low rates.
A loan officer that advertise “low rates” would be like a supermarket advertising “We have food”. Of course they do. Otherwise you wouldn’t shop there.
But ordinary people don’t understand the mortgage rate part of the mortgage industry and get blinded by the promises of “low rates”. Low rates are a business standard, everyone. Not a feature.
Not having a well-formed plan leads to irrational mortgage management including:
- Paying fees to buy down a mortgage rate when you believe mortgage rates will fall in the future
- Converting from an ARM to a fixed when you know that you will be moving in a handful of years
- Walking away from a scheduled closing because somebody offered you a mortgage rate that’s 0.250% lower
And this is why falling mortgage rates can be bad for homeowners. It shifts attention away from the short- and long-term planning process and pushes it into instant gratification mode.
It’s the stuff that makes financial planners cry at night. Homeowners can undue years of retirement planning with just one ill-fitted mortgage at “a great rate”.