Mortgage Daily Logo
mortgage news from industry experts

Success Strategies for Rising Rates

Industry Commentary

Success Strategies for Rising RatesSome loan program thrive in higher rate environment

May 25, 2004


With rates going up, the question often arises; What can I do to make sure I succeed in what looks to be a more difficult selling environment?Success is not an accident. It is always accompanied by a plan. There are many aspects of this plan that will help determine whether you will be successful as rates go up. Not the least important of these is focusing upon areas that are more likely to thrive in higher rate environments. Not every area of origination goes south every time rates go up.

While refinances are already dropping, the real estate market is likely to stay strong. A large move in the purchase market would be 10% to 20% downward. The refinance market can plummet by 60% or more overnight. You are part of the real estate industry at all times and cannot afford to ignore purchases. The key is learning how to deliver value to this market segment. Many loan officers feel they can ignore purchases — but not only are purchases anywhere from 30.% to 70% of the overall market (depending upon how strong refinances are) — they are the bastion of our industry.

As rates go up, a larger portion of the mortgage market will turn to adjustable rate mortgages. Those considering adjustables will opt for more short-term adjustables (say a 3/1 instead of a 5/1). Indeed, the Mortgage Bankers Association has already reported the highest market share for ARMs in the past 10 years. Don’t be surprised to see ARMs soar past more than half of the loans we produce if rates continue to rise. This is one reason the real estate market may not be as adversely affected as expected by rising rates. Purchasers just simply finance their purchases with adjustables — keeping their monthly payment the same as before rates went up. Never will this concept be more true than now with interest-only mortgages being so popular.

No Cost Loans
When rates go up — the mortgages written at higher rates will be utilized on the average for a shorter period of time. This is another reason why adjustables make more sense as rates rise. In addition, consumers should invest less money obtaining these loans. This is interesting because it flies in the face of human nature — when rates go up — many use points to buy the rate down. But if the loan does not last very long — this money invested will be wasted.

Higher rates affect the levels on the “A” credit loan market more profoundly than they do subprime loans. When someone needs to consolidate debts — the short-term pain is great and they need to act quickly regardless of present rate environment. Of course, more of these homeowners will chose adjustable rate mortgages. Experts have predicted that the subprime market will represent the strongest sector of the mortgage market in the next two years.

If you are setting out a plan, it should revolve around the targets that are more likely to be productive in today’s economic environment. A few words of caution, however. One thing I can always say about this industry is that it will change — and in ways we do not expect. So don’t be surprised if rates move in the opposite direction as expected. Therefore, your plan must be one that will fit in the long run. If it takes too long to change directions, you will be left holding the bag. If it helps you when rates move up, but you have to completely start over when the next trend takes place — you will be on the proverbial treadmill. A strong and diverse marketing plan will help you get off the treadmill.


Dave Hershman is a mortgage industry author and speaker — with 8 books and hundreds of articles to his credit. He also heads Mortgage School. You can email Dave at

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming home closing documents have been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners. After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage...


Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI

Related Posts