Track the state with the strictest lockdown effect

Interest rates make headlines almost every day as buyers, sellers, and people looking to refinance anxiously await news of rate cuts in hopes of lowering their mortgage payments. However, not all states are the same when it comes to how much a homeowner can lose by moving. that is because Each state has its own my own mortgage interest rate average, and tends to stay around the national average. At the time of writing this article, this is 6.85%.

Despite calls for interest rate adjustments, most U.S. homeowners are not feeling the pinch of higher interest rates on mortgage payments. That’s because, according to a 2019 report, 86% of mortgages currently have interest rates below 6%, with the average interest rate being 4.1%. us news.

The degree of tie-down or mortgage lock-in effect experienced by a homeowner or investor depends on the borrower’s current mortgage rate versus the rate they would have to pay for another home if they decided to move. For many Americans, Approximately 3% loss. For example, if your current interest rate is 4% and the national average is 7%, a 3% difference or interest rate gap will determine how much it will cost you Move in this state.

according to us news Report, At the time of writing this article, The average mortgage rate lock gap is 3.15 percentage points. Based on the national average loan size of $357,000, principal and interest payments for a new mortgage with an interest rate of 7.25 percent would be $2,435, compared with $1,817 with an existing interest rate of 4.1 percent, an increase of $618, or 34 percent.

The report reveals some interesting statistics:

• Colorado has the largest mortgage rate lock gap in the country, at 3.45 percentage points.
• Texas has the narrowest mortgage rate lock gap at 2.55 percentage points.
• new york and new mexico bound The lock-in gap is the second smallest at 2.575%.
• When buyers apply these rate locks to high-cost-of-living states like Hawaii and California, buyers can see their payments increase significantly by up to 60% when they sell their existing home and buy a new one.

Ways to mitigate the effect of interest rate lock-in for real estate investors

So what should you do if you want to avoid this phenomenon? Here are some strategies for investors.

Assumable Mortgage

this Bank of America website Says: “A home loan assumption allows you as the buyer to assume responsibility for existing debt secured by the mortgage on the home you are purchasing.

Two processes that may meet your needs are Qualified Assumption and Name Change and Title Transfer Request.

If lenders such as banks agree Collateral Assumptionthe borrower can maintain the same interest rate as the previous homeowner price Just pay for the service, which is usually only $750. according to wall street journalAs of Sept. 30, the Federal Housing Administration (FHA) processed nearly 3,350 mortgage assumptions in 2023, up from 2,570 the year before. More than 20% (22.3%) of mortgages are government-backed and therefore affordable, meaning 11 million homeowners in the United States may have an affordable mortgage.

The number calculator is located at us news Running data finds Mississippi has the highest affordable mortgage rate in the nation at 38.7%

increase rent

rent increase Becoming a hot topic of discussion recently, the Biden administration proposes Increase the upper limit by 5% Suitable for owners with more than 50 units. However, high interest rates and increased insurance costs have left many landlords with no choice but to raise rents to offset the costs. Lower interest rates –which one must Coming soon—might be the magic bullet that ends the hurt.

Lower property taxes

attract you property tax Appraisals are familiar to real estate investors, especially given the increase in property values. However, only 5% of owners appeal their taxesaccording to the National Taxpayers Union Foundation.

Depending on your location, this is usually best done on a daily basis by an experienced attorney or tax appeals firm. Have used an intermediary II can attest that the savings are substantial.

Reduce landlord insurance cost

As property insurance costs soar, many investors Want to know How to lower them. This article Some methods are demonstrated. Reduce insurance multiple units Construction can save a lot of money every year.

cost segregation

If you’re a real estate investor, you’ve presumably taken advantage of depreciation and expenses in your annual taxes. But are you also taking advantage of cost segregation? What if you are Multifamily investors?

this BiggerPockets Forum Post National tax reform expert Julio Gonzalez pointed out:

“A cost segregation study is an IRS-approved federal income tax tool that increases near-term cash flow by taking advantage of shorter depreciation payback periods to accelerate return on investment…It can increase potential insurance premium savings and provide support Property Tax Appeal Process. Additionally, it can help maximize renovations and improvements.

final thoughts

With 86% of homeowners enjoying an interest rate of 4.1%, it’s understandable that many would be reluctant to move and lose such a low interest rate. However, move Sometimes it is unavoidable, e.g. in the case of job transfer, divorce, and / or An ever-expanding family. Likewise, real estate investors may have to purchase a property based on the following factors: Chapter 1031 Exchange timetable or possible simply You don’t want to sit idly by until interest rates drop and then face stiff competition from other investors.

In these cases, the goal is to offset the short-term charges of the higher interest rate until you can Refinance Once interest rates drop. No matter what situation you’re in, with some digital crunching and creative thinking, it’s possible to unlock a low interest rate without incurring a significant increase in fees.

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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.