It couldn’t last forever. After years of historically low interest rates, the Federal Reserve has embarked on a campaign to raise benchmark interest rates to more typical levels. Rates on a 30-year fixed-rate mortgage are expected to reach 5% before the year is out ¬– a level that hasn’t been seen since February 2011.
Clients of your mortgage business may be concerned about recent rate increases and the promise of more increases to come. How can you counteract their concerns and use higher interest rates to your advantage?
Use the “Buy Now” Approach
An individual rate increase could cause a temporary drop in mortgage business, but a program of scheduled interest rates could work to your advantage. If rates are highly likely to increase in the future, why not take advantage of the rates now before they go up even further?
You can show potential clients how an interest rate increase will affect the collective interest charges on a particular home. When clients see the potential cost of delaying a purchase until interest rates rise again, they may be spurred to action.
Shift Away from Refinancing
A successful refi depends on dropping the current interest rate enough to generate savings for the borrower after loan costs are taken into account. An increase in interest rates makes refinancing a tougher sell – especially when most borrowers who qualify for a refi have already taken advantage of years of historically low interest rates. If their current fixed rate is lower than available offerings, then there is no incentive to refinance.
Consider reducing your ratio of business devoted to refinancing and shifting more resources toward new home purchases.
If you specialize in refinance loans, you’ll need to find new ways to expand your base within the refi market. Consider an ad campaign targeted at homeowners who have recently improved their credit score (and therefore may qualify for lower refinancing rates). Where are you most likely to reach these consumers in your local market? With home prices on the rise, you may be able to drive customers into cash-out refi’s to take advantage of their home equity.
According to CoreLogic, there isn’t much correlation between mortgage interest rates and home sales or home prices. This makes sense – we didn’t stop buying homes in the 1980s, when double-digit mortgage rates ruled for the entire decade.
Prospective homeowners may adjust the size of home or type of home purchased based on what they can afford – but they won’t bow out of the market entirely unless they are really on the edge of being able to afford a home. Help your customers find a home that’s best for them: affordable given the interest rates for which they qualify, but within their means in a location they want.
Revisit Your Leads Database
If higher interest rates do lead to lower demand, you may need to revisit your database of mortgage leads for the next tier of potential clients. For many of your prospective customers, what might not have been right for them then, could be right for them now. Timing is everything.
Do you have a suitable lead management system [LINK TO https://www.leadpoint.com/5-tips-for-better-mortgage-lead-management/] – or a suitable cache of leads – that you can develop to find hidden gems? If not, consider the services of a mortgage lead provider who can provide the necessary leads and management services to help you succeed, regardless of the current mortgage interest rates.
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