When it comes to the relationship millennials have with interest rates, their experience is truly distinct from other generations.
The largest living generation in America has only known low rates, so now is the time to analyze the situation and take action to serve this demographic.
First, consider why millennials are different. Then, think about what the credit union can do to work with them better.
Two Reasons Millennials Have A Special Relationship With Interest Rates
1. They’ve only known low rates.
There are many factors to point to when trying to discover why millennials might or might not be different from other generations. In this case, it’s quite simple: Millennials are coming of homebuying age at a time when mortgage interest rates are historically low. You might think that growing up with low mortgage rates would be a good thing, but if and when mortgage interest rates rise, it will be a tough pill to swallow.
For example, rates have been so low that anything more than 4% can seem crazy by potential homebuyers, according to a report by MarketWatch. Not so long ago 4% rates were crazy good, but millennials weren’t around to realize that.
2. They’re living at home, and they don’t like it.
The title of this Pew Research Center report published last year says it all: For First Time in Modern Era, Living With Parents Edges Out Other Living Arrangements for 18- to 34-Year-Olds. You could spend days reading all hot takes on why this is happening, but all you really need to know is 90% would prefer to move into their own home. With only 15% of 25- to 34-year old millennials having more than $10,000 saved, the conflict is clear.
Millennials want to buy a home, and your mission is to help them achieve that goal.
Most first-time homebuyer purchases are made with down payments of 5% or less, so millennials are right to be a bit wary about rising rates. Changes in the interest rate will impact them even more than other generations because more people are putting down less money for a down payment. If they can close on a home before rates rise, it could translate into a lot of saved money — and less sharing laundry with their parents.
Two Ways To Educate And Help Millennials
1. Give them a (gentle) history lesson.
Millennials have never known higher rates, which means they could benefit from a history lesson. Freddie Mac has historical rates available dating back to 1972. Let millennials dig into the data themselves or show them the big picture at a glance with these numbers:
January 2017 – 4.15% (6 million in 2016)
January 2015 – 3.57% (5.7 million existing homes sold)
January 2005 – 5.71% (8.3 million existing homes sold)
January 1995 – 9.15% (4.5 million existing homes sold)
January 1985 – 13.08% (3.8 million existing homes sold)
January 1975 – 9.43% (3.0 million existing homes sold)
Your borrower doesn’t need to be an expert economist to see that 4% rates are on the lower end of the spectrum. Painting this picture might help them see that rates can get a lot more “crazy” than 4%.
2) Empower them with the buy now vs. wait calculator.
Millennial or not, every single situation is different when it comes to buying a home, especially when it comes to deciding when to buy your first home. It’s not just about comparing the costs of renting against a mortgage payment. It's also about deciding how much of a down payment to put down and whether to use private mortgage insurance. Calculating all these factors can be difficult, and unfortunately, as only 8% of millennials trust banking institutions, they might want to take matters into their own hands. That’s where the buy now vs. wait calculator comes into play.
The buy now vs. wait calculator only takes a few minutes for a potential homeowner to fill out, and it will tell them the real costs of renting compared to owning a home. Allowing your borrower to calculate these numbers on their own terms will help them feel empowered in making the right decision on whether they’re ready to buy a home now.
Millennials are just one of the unique challenges in working with today’s homebuyers. That’s why MGIC put together the Loan Officer Hub ― an all-inclusive resource designed specifically for loan officers. Our goal is to make your job easier by giving you access to resources for all aspects of your job. On the Loan Officer Hub you’ll find:
Referral, consumer, and social media strategies
Mortgage industry podcasts
Loan officer tools
With these tools, your credit union can help Millennials take advantage of these historically low rates. To get to know your Millennial customers even better, check out this insightful infographic all about the Millennial generation.