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House hacking with a high interest rate
Hello everyone. I just started the mortgage application process and have been pre-approved for a loan with a 6.75% interest rate. I was planning on purchasing a duplex this summer and going the FHA route, but now am not sure if it's the right decision with how high interest rates are. My price range is 200-250k and my total interest paid when it's all said and done will exceed the purchase price. I don't want to sit around waiting for interest rates to drop and pass on some good opportunities, but I'm also not sure if I want to pay that much in interest.
Does anyone have any opinions on this? Would refinancing a few years after purchasing make my numbers look better?
Thank you in advance.
Ultimately, the decision to purchase now or wait depends on your financial goals, risk tolerance, and the specific opportunities you’re considering and every situation is unique, so what works for one person may not be the best for another. There are deals out that make sense with 7%+, but not so much for a duplex.
Refinancing a few years after purchasing can make your numbers look better if interest rates drop or your financial situation improves, allowing for a better rate. Keep in mind that refinancing comes with its own costs, and it’s important to calculate whether the savings from a lower interest rate will outweigh these expenses.
Quote from @Kai Kopsch:
Ultimately, the decision to purchase now or wait depends on your financial goals, risk tolerance, and the specific opportunities you’re considering and every situation is unique, so what works for one person may not be the best for another. There are deals out that make sense with 7%+, but not so much for a duplex.
Refinancing a few years after purchasing can make your numbers look better if interest rates drop or your financial situation improves, allowing for a better rate. Keep in mind that refinancing comes with its own costs, and it’s important to calculate whether the savings from a lower interest rate will outweigh these expenses.
Thank you for the information. Absolutely agree that every situation is different. There are so many factors that come into play especially for first time buyers and I want to try to avoid getting cold feet.
In my opinion this is a simple question. Compare your cost of ownership with the cost to rent. If you factor in house hacking it's a no brainer. Your tenant will pay most of part of your mortgage.
I wouldn't plan on interest rates going down much, act on what important now. Trying to time the market typically leads to
. If purchasing is a long term decision then you will be just fine. 10 years from now you will be way ahead.
Don't over think this, you can always rent both sides later and buy another one.
#2 House Hacking Contributor
- Real Estate Agent
- Los Angeles, CA
This is an ongoing conversation with Buyers all over the country. Here's the problem: This is an ongoing conversation with Buyers all over the country.
You can wait, but so is everyone else. This means if/when rates drop, you are going to be competing against other buyers, driving the price up. I don't think it will be like 2021, but there will still be more competition.
Versus, buying now, rates drop, competition increases and prices go up, and you get to ride it out. Next year (or whenever), you can decide to refinance. But at least you will be in control.
Quote from @Philip Polski:
In my opinion this is a simple question. Compare your cost of ownership with the cost to rent. If you factor in house hacking it's a no brainer. Your tenant will pay most of part of your mortgage.
I wouldn't plan on interest rates going down much, act on what important now. Trying to time the market typically leads to
. If purchasing is a long term decision then you will be just fine. 10 years from now you will be way ahead.
Don't over think this, you can always rent both sides later and buy another one.
Definitely simpler when you think about it like that. Thank you for the insight.
Quote from @Rick Albert:
This is an ongoing conversation with Buyers all over the country. Here's the problem: This is an ongoing conversation with Buyers all over the country.
You can wait, but so is everyone else. This means if/when rates drop, you are going to be competing against other buyers, driving the price up. I don't think it will be like 2021, but there will still be more competition.
Versus, buying now, rates drop, competition increases and prices go up, and you get to ride it out. Next year (or whenever), you can decide to refinance. But at least you will be in control.
Absolutely. I'm clearly not the only one having this issue. Thank you for the comment, Rick.
I didn't experience interest rates like this but when I bought my first house hack a few years ago I got an amazing interest rate but thought this has to be the highest this house will every be worth. I thought for sure I was overspending by thousands even hundreds of thousands. But I didn't wait and now that house is worth 200k more. Glad I didn't wait.
I bought house hack #2 when everyone started panicking about rates, I was spoiled with 3% and bought down a 4% IR. Now rates are 6-7. I'm glad I didn't wait.
My point? Don't wait to buy real estate, buy real estate and wait.
Interest rates aren't at their lowest right now; they're still higher than the recent record low rates, at roughly 6.75%. FHA loans are a good option for duplexes, particularly if you have between $200k and $250k to spend. Getting a property without a lot of competition and accumulating equity through monthly payments are two benefits of buying now. Cons include having to deal with future rate unpredictability and paying extra interest over the course of the loan. Perhaps later, if interest rates drop, refinancing could reduce your monthly payment; nevertheless, beware of additional costs. Utilize a mortgage calculator to calculate the payments, take into account your schedule, and speak with a Columbus local lender. Don't procrastinate; good offers can still be found; waiting for the ideal pricing sounds lovely.
#5 House Hacking Contributor
- Realtor
- Reno, NV
Congrats on being pre-approved!! If your fear is on a 30 year time horizon, then your lens should also equally look at the potential upside down the road over 30 years. Also, who is really paying the interest?
And, house hacking is a completely unique strategy because it's also providing you shelter.
Great insights from @Philip Polski. Timing the market is very difficult, and not all stars will always fully align.
Low prices, low interest rates, high rents, great buyer sentiment with no economic issues, etc. just do not happen all at the same time.
Best of luck to you!
-
Real Estate Agent Nevada (#S.0200197)
- 415-233-1796
- http://addressincome.com
Just for some perspective: I purchased my first house in 1985 for $80k. The interested was 13% and now the house is worth $450k. What if I thought interest rates might go down and hesitated. 1) I wouldn't have been able to enjoy the house because I would have been renting. 2) I would have lost all the upside and would have paid more when rates went down.
Please don't be afraid of today's rates, if it's a good business decision today you would thank yourself later.
The interest rate you were quoted is not high. Freddie Mac — the main industry source for mortgage rates — has been keeping records since for a very long time. Just for context, in the last 50 years, between April 1971 and March 2024, 30-year fixed-rate mortgages averaged 7.74% In October of 1981, mortgage rates reached an all time high of 18.63% (average) to as low as 2.65% in January of 2021. If you keep reading many of the topics on the forums, you will come to find many people sharing posts where they attest to paying 18.63% in the '70's for their homes. Thank God we are not living those times any more.
It seems that you are a young person, so naturally, you may be comparing the rates you were recently quoted to the rates of January 2021. And sure, who wouldn't want a lower interest rate? But as many people before me have said (in many, many posts in the forums), the best time to buy real estate is now. It is impossible to time the market. Rather get in now, start building equity, start house-hacking, and wait for those opportunities to come your way. And they will. Do not wait until "interest rates" go down, get that duplex now. If you wait, someone with more money may come in and give a better offer for that duplex.
By purchasing now, you are assured that the property is yours and when rates come down, voila! All you do is simply refinance. If you were able to "make it" with the "high interest rate" of 6.75%, then you will obviously be able to make it at a lower interest rate....you might even cash flow, thus allowing you the opportunity to buy another property and scale your way to success.
-
Real Estate Agent
As corny as the sayings "marry the house, date the rate" and "don't wait to buy real estate, buy real estate and wait" are....they're true.
Looking at how much interest you're paying over the life of the loan is gross, but how realistic is it to think you'll actually be paying on house for 30 years? Not to mention with a house hack, YOU aren't paying all of that interest, your tenants are (you will be at first when you're occupying a unit, but you get the point). Is it better to not buy a property to avoid paying interest, or better to buy and pay the interest and have someone cover some/all of your mortgage? Of course paying cash is the the best case scenario, but not feasible for most people.
I don't like to tell people to plan on a refinance because I don't have a crystal ball, but you have 2 possible outcomes. Rates get higher or stay the same and you do nothing, or they drop and you look into refinancing.
I don't have as much info as the lender that pre-approved you, but based on the info you've provided and assuming you have decent credit, there's a good chance you can get that rate closer to 6%. I'm also in Ohio and priced a $250k duplex with the minimum 3.5% down and a 700 FICO, and came in at ~5.9%. While I don't believe you should pick a lender based solely on interest rate, that is an important factor in evaluating cash flow when you're talking about house hacking.
Hope that helps a bit, happy to connect if you have any questions or would like to discuss further. Good luck!
Quote from @Daniel McDonald:
I didn't experience interest rates like this but when I bought my first house hack a few years ago I got an amazing interest rate but thought this has to be the highest this house will every be worth. I thought for sure I was overspending by thousands even hundreds of thousands. But I didn't wait and now that house is worth 200k more. Glad I didn't wait.
I bought house hack #2 when everyone started panicking about rates, I was spoiled with 3% and bought down a 4% IR. Now rates are 6-7. I'm glad I didn't wait.
My point? Don't wait to buy real estate, buy real estate and wait.
Thanks for sharing this, Daniel. It's extremely helpful hearing the experiences of others.
Quote from @Jay Thomas:
Interest rates aren't at their lowest right now; they're still higher than the recent record low rates, at roughly 6.75%. FHA loans are a good option for duplexes, particularly if you have between $200k and $250k to spend. Getting a property without a lot of competition and accumulating equity through monthly payments are two benefits of buying now. Cons include having to deal with future rate unpredictability and paying extra interest over the course of the loan. Perhaps later, if interest rates drop, refinancing could reduce your monthly payment; nevertheless, beware of additional costs. Utilize a mortgage calculator to calculate the payments, take into account your schedule, and speak with a Columbus local lender. Don't procrastinate; good offers can still be found; waiting for the ideal pricing sounds lovely.
Absolutely. Really appreciate the comment, Jay.
Quote from @Jake Andronico:
Congrats on being pre-approved!! If your fear is on a 30 year time horizon, then your lens should also equally look at the potential upside down the road over 30 years. Also, who is really paying the interest?
And, house hacking is a completely unique strategy because it's also providing you shelter.
Great insights from @Philip Polski. Timing the market is very difficult, and not all stars will always fully align.
Low prices, low interest rates, high rents, great buyer sentiment with no economic issues, etc. just do not happen all at the same time.
Best of luck to you!
Thank you! Some great insights here that I haven't really thought about. It's so easy to focus on the negatives without even thinking about the positives.
Quote from @Manny Vasquez:
The interest rate you were quoted is not high. Freddie Mac — the main industry source for mortgage rates — has been keeping records since for a very long time. Just for context, in the last 50 years, between April 1971 and March 2024, 30-year fixed-rate mortgages averaged 7.74% In October of 1981, mortgage rates reached an all time high of 18.63% (average) to as low as 2.65% in January of 2021. If you keep reading many of the topics on the forums, you will come to find many people sharing posts where they attest to paying 18.63% in the '70's for their homes. Thank God we are not living those times any more.
It seems that you are a young person, so naturally, you may be comparing the rates you were recently quoted to the rates of January 2021. And sure, who wouldn't want a lower interest rate? But as many people before me have said (in many, many posts in the forums), the best time to buy real estate is now. It is impossible to time the market. Rather get in now, start building equity, start house-hacking, and wait for those opportunities to come your way. And they will. Do not wait until "interest rates" go down, get that duplex now. If you wait, someone with more money may come in and give a better offer for that duplex.
By purchasing now, you are assured that the property is yours and when rates come down, voila! All you do is simply refinance. If you were able to "make it" with the "high interest rate" of 6.75%, then you will obviously be able to make it at a lower interest rate....you might even cash flow, thus allowing you the opportunity to buy another property and scale your way to success.
You are exactly right. I haven't been around for those extremely high rates, so I've only been comparing them to the 2021 rates. It doesn't sound like those 2% rates happen often, so it doesn't make much sense for me to be comparing the current rates to them. Really appreciate your comment.
Quote from @Brittany Minocchi:
As corny as the sayings "marry the house, date the rate" and "don't wait to buy real estate, buy real estate and wait" are....they're true.
Looking at how much interest you're paying over the life of the loan is gross, but how realistic is it to think you'll actually be paying on house for 30 years? Not to mention with a house hack, YOU aren't paying all of that interest, your tenants are (you will be at first when you're occupying a unit, but you get the point). Is it better to not buy a property to avoid paying interest, or better to buy and pay the interest and have someone cover some/all of your mortgage? Of course paying cash is the the best case scenario, but not feasible for most people.
I don't like to tell people to plan on a refinance because I don't have a crystal ball, but you have 2 possible outcomes. Rates get higher or stay the same and you do nothing, or they drop and you look into refinancing.
I don't have as much info as the lender that pre-approved you, but based on the info you've provided and assuming you have decent credit, there's a good chance you can get that rate closer to 6%. I'm also in Ohio and priced a $250k duplex with the minimum 3.5% down and a 700 FICO, and came in at ~5.9%. While I don't believe you should pick a lender based solely on interest rate, that is an important factor in evaluating cash flow when you're talking about house hacking.
Hope that helps a bit, happy to connect if you have any questions or would like to discuss further. Good luck!
Thank you, Brittany! This is extremely helpful. Looking at those final loan numbers is obviously scary, but as you mentioned, I won't be the only one paying all that interest which makes the deal feel a lot better.
Quote from @Codey Wendel:
Hello everyone. I just started the mortgage application process and have been pre-approved for a loan with a 6.75% interest rate. I was planning on purchasing a duplex this summer and going the FHA route, but now am not sure if it's the right decision with how high interest rates are. My price range is 200-250k and my total interest paid when it's all said and done will exceed the purchase price. I don't want to sit around waiting for interest rates to drop and pass on some good opportunities, but I'm also not sure if I want to pay that much in interest.
Does anyone have any opinions on this? Would refinancing a few years after purchasing make my numbers look better?
Thank you in advance.
I would advise purchasing now. I doubt if home prices come down, and you can refinance when interest rates come down. Since you are house hacking, the goal in year 1 is to make sure at least half of your total expenses are paid by the tenant and in year 2 you should be able to cashflow a little. By year 3+ you'll be making good money and happy with your purchase. Since the tenants are paying, there is no need to worry about how much the total cost after interest will be.
Quote from @Codey Wendel:
Quote from @Brittany Minocchi:
As corny as the sayings "marry the house, date the rate" and "don't wait to buy real estate, buy real estate and wait" are....they're true.
Looking at how much interest you're paying over the life of the loan is gross, but how realistic is it to think you'll actually be paying on house for 30 years? Not to mention with a house hack, YOU aren't paying all of that interest, your tenants are (you will be at first when you're occupying a unit, but you get the point). Is it better to not buy a property to avoid paying interest, or better to buy and pay the interest and have someone cover some/all of your mortgage? Of course paying cash is the the best case scenario, but not feasible for most people.
I don't like to tell people to plan on a refinance because I don't have a crystal ball, but you have 2 possible outcomes. Rates get higher or stay the same and you do nothing, or they drop and you look into refinancing.
I don't have as much info as the lender that pre-approved you, but based on the info you've provided and assuming you have decent credit, there's a good chance you can get that rate closer to 6%. I'm also in Ohio and priced a $250k duplex with the minimum 3.5% down and a 700 FICO, and came in at ~5.9%. While I don't believe you should pick a lender based solely on interest rate, that is an important factor in evaluating cash flow when you're talking about house hacking.Hope that helps a bit, happy to connect if you have any questions or would like to discuss further. Good luck!
Thank you, Brittany! This is extremely helpful. Looking at those final loan numbers is obviously scary, but as you mentioned, I won't be the only one paying all that interest which makes the deal feel a lot better.
You are very welcome! If you'd like a second opinion, I'd be glad to take a look for you.
Quote from @Philip Polski:
In my opinion this is a simple question. Compare your cost of ownership with the cost to rent. If you factor in house hacking it's a no brainer. Your tenant will pay most of part of your mortgage.
I wouldn't plan on interest rates going down much, act on what important now. Trying to time the market typically leads to
. If purchasing is a long term decision then you will be just fine. 10 years from now you will be way ahead.
Don't over think this, you can always rent both sides later and buy another one.
I agree 100%. Your tenants will be the ones paying the debt anyway.
I haven't read any of the responses, but I would bet that my responses are going to be similar to others here. Try not to get too focused on how much interest rates are, but if it makes sense for YOU.
Quote from @Codey Wendel:
Hello everyone. I just started the mortgage application process and have been pre-approved for a loan with a 6.75% interest rate. I was planning on purchasing a duplex this summer and going the FHA route, but now am not sure if it's the right decision with how high interest rates are. My price range is 200-250k and my total interest paid when it's all said and done will exceed the purchase price. I don't want to sit around waiting for interest rates to drop and pass on some good opportunities, but I'm also not sure if I want to pay that much in interest.
Does anyone have any opinions on this? Would refinancing a few years after purchasing make my numbers look better?
Thank you in advance.
Hey, Codey, if you decide to wait until the rates drop, the prices will likely be higer. I'm personally buying pretty aggressively with the plan to refinance down the road. With that said, I'm still making sure the deal makes sense with the current rates. Good luck!
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- https://www.reafco.com/
My opinion is that house hacking is the best tool to trump high rates. You can likely still make the numbers work this way, build equity, get appreciation, and then yes REFI if and when rates drop later on for more cashflow. Or do a Rehab House Hack like I am and create your own forced equity, refi with rate drops for a huge change and still be plenty okay if they don't.
Quote from @Codey Wendel:
Hello everyone. I just started the mortgage application process and have been pre-approved for a loan with a 6.75% interest rate. I was planning on purchasing a duplex this summer and going the FHA route, but now am not sure if it's the right decision with how high interest rates are. My price range is 200-250k and my total interest paid when it's all said and done will exceed the purchase price. I don't want to sit around waiting for interest rates to drop and pass on some good opportunities, but I'm also not sure if I want to pay that much in interest.
Does anyone have any opinions on this? Would refinancing a few years after purchasing make my numbers look better?
Thank you in advance.
So this duplex , are you planning to rent out both sides eventually? If you are then who is actually paying all that interest? If you arnt and your going to live there long term then again.. your other side is paying a very nice chunk of the overall interest. I think its typical to see 95-110% TIP just matters to me who is actually supplying the money to pay that interest . In the end the Equity is mine .. on the path to the end the interest is paid by the tenant imo
Cashflow will help you pay bills. Appreciation will make you wealthy.