Your Colorado Springs Life & Home

How Interest Rates Reshape Home Affordability And Strategy

• Lori Thompson • Episode 13

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How Do Rising Interest Rates Affect Home Affordability?

The market finally exhaled, and that breath of calm changes everything for buyers and sellers. We sit down with Lori Thompson, a Colorado Springs real estate pro, to unpack how interest rates actually flow through your monthly budget, why a balanced market unlocks negotiation power, and which financing strategies stretch buying power without stretching you too thin. If you’ve been stuck between waiting for “perfect” rates and wanting stability now, this conversation gives you a clear, practical path.

Lori walks us through the real drivers of affordability—principal and interest, yes, but also fast-rising homeowners insurance and shifting property taxes. We compare the bidding-war years of waived inspections and wild escalations with today’s landscape of concessions, price reductions, and thoughtful offers. You’ll hear how a 2-1 buydown can create a softer landing in year one and two, why adjustable-rate mortgages can be smart when caps and indexes are understood, and where assumable mortgages can slash payments if you can bridge the cash-to-loan gap.

Beyond products and payments, we focus on lifestyle and resilience. Lori asks the questions lenders don’t: Do you still want to eat out, travel, and sleep at night? Would you rather own a bit less house and have more life? We map out long-term planning—how to think about time horizons, what to do if you need to move sooner than planned, and why renting out a home can keep your equity compounding while a tenant pays down the note. Sellers aren’t left out either; we cover realistic pricing, seller-paid buydowns, and how strong concessions can revive buyer affordability.

If you’re ready to buy now and refinance later, or you want to negotiate like the market finally favors you, this episode delivers a toolkit you can use today. Subscribe, share this with someone weighing a move, and leave a review to tell us which strategy you’ll try first.

To learn more about RE/MAX Properties Inc. visit:
https://www.LoriThompson.REMAX.com
RE/MAX Properties Inc.
Colorado Springs
719-332-1807

SPEAKER_01:

Welcome to your Colorado Springs life and home, where real estate is real time and maybe a little too much car. Hosted by Remax Properties licensed realtor broker and top producer Lori Thompson, a local legend who's been helping military families and civilians buy and sell home school for four years. Whether you're PCSing, upsizing, downsizing, or just hatering, Lori's got you covered. Why? Because she's your lifetime realtor. And she actually answers your phone. Imagine that.

SPEAKER_02:

It's about what it means for your monthly budget and buying power. Welcome back, everyone. Frederick here, co-host and producer back in the studio with Remax Properties licensed realtor and broker, Lori Thompson. Lori, how are you doing today?

SPEAKER_00:

Oh, pretty good, Frederick. How are you?

SPEAKER_02:

Good, good. Thanks for asking. Um, well, let's get into it then. Lori, can you tell us how rising interest rates affect home affordability?

SPEAKER_00:

Oh, they make a big difference. Um, but it's kind it's like anything, it's a double-edged sword, okay? Now, just for perspective, when I first got my license in 1985, the interest rate was 13.5%. So when it first hit 9%, I was just amazed that it was a single digit. And then of course they continued to drop from there. Um, when the interest rate was really low, it wasn't necessarily that good for some buyers because then we had this crazy market where every house you listed, you could get anywhere from 10 to 20 offers or more. And they got really competitive and they got a bit ridiculous. Um, where people were offering a they were offering to pay thousands of dollars above appraisal to waive inspections. It was pretty crazy. Well, we don't have that market now. Right now we have a market where there's more inventory than there used to be, so it's kind of shifting from a seller's market to a buyer's market. Then you have to realistically look at what will the payments be at this interest rate. Today I was we're basically upper fives, mid to upper fives right now. That's a really good rate. It's just the case is can you afford the payment? So right now, buyers are getting closing cost concessions, they're getting different types of financing concessions. It's a little bit less chaotic. And it's what I tell them is hey, if you get a house now, and hopefully the rates will come down a little bit more, you can always refinance. But when you go back into that crazy market, you don't have as much opportunity. So it's everything has a blessing and a curse.

SPEAKER_02:

Yeah, wow. That sounds like uh wild times with the interest rate fluctuations.

SPEAKER_00:

Um yeah.

SPEAKER_02:

So with that in mind, then what's the relationship between interest rates and monthly mortgage payments?

SPEAKER_00:

Oh, it makes a huge difference. Like right now, um it just it can just skyrocket the payments. We also have issues, our property taxes went up a bit. And right now, our one of our biggest struggles is homeowners insurance. So if a roof, even if you have a roof that is perfectly fine, no hail damage, no wind damage, great shape, and it's more than 10 years old, the the cost of homeowners insurance goes up. And so there's no rhyme or reason. I'm hoping that part will settle down. So where people used to have payments closer to let's say 2,000 to$2,500 for an average priced home, right now you're looking at closer to$310 to$3,400 a month for a mortgage payment, and that that can get a little steep.

SPEAKER_02:

Yeah, wow. Wow. Um so then uh how do rate hikes impact first-time buyers versus say repeat buyers?

SPEAKER_00:

They might have to downsize some of their expectations. So instead of buying exactly what they want, they might have to kind of adjust their expectations if they want a comfortable mortgage payment. Now, I kind of do something a little bit odd. I always talk to them about, hey, do you like to go out to eat? Do you like to take vacations? You really have to take a look of what kind of payment is comfortable for you and what would you do in case of an emergency. And so I want them to think through that and have a payment that they can afford, even if they run into a hardship or something else comes up. So I actually have talked people down and what they spend before, which is kind of not what people expect of a realtor, but I I want long-term clients, not short-term.

SPEAKER_02:

Yeah, I'm sure they really appreciate uh, you know, what you do, especially when say they hit uh time when uh they it's time to go on vacation or eat out. I'm sure they're like, Oh, I'm so glad Lori asked me those questions earlier because now I'm not, you know, in the red or anything. Uh so with that in mind, um, like are there any strategies that buyers can use to stay competitive in a higher rate market?

SPEAKER_00:

You know, one thing that that people, and I think we were gonna address this a little bit later, but with my own granddaughter, we were looking at new construction, and new construction typically has higher uh they have higher property taxes. And we had just sold a condominium that I had sold her a few years back, and she made a nice little profit. And I said, you know, maybe we should look for assumable mortgages. And we actually found her an assumable mortgage, and with that payment, it was like half of what that new construction payment would have been. And I think they're very happy with that decision. Not everybody will always have what's called cash to loan, and that's the difference between the asking price and the mortgage balance, and so there's different types of assumable mortgages, but I've done a couple now, and it does help people get that lower rate. So they can either get a new loan or they can look around for an assumption, but an assumption does require more of a down payment typically.

SPEAKER_02:

Wow, that's that's really interesting. Um, so speaking on like types of mortgages, um what role uh say what role does like an adjustable rate mortgage or a buy down play in today's climate?

SPEAKER_00:

That that's a great question because you have to look at lately we've been doing a lot of two one buy downs. And what that means, let's say today's rate is 5.75%. With a two-one buy down, the first year your interest rate is 3.75. That's what the payment is based on. The second year it's 4.75, and years three through 30 on a standard 30-year mortgage, it goes to the 5.75. So, of course, the hope is that your income will continue to rise, or that if rates come back down, you could refinance. And the same theory can work on an adjustable rate mortgage. The most important thing to know about an adjustable rate mortgage is what is your basis, what is your lifetime cap. Like one of the loans I have on one of my investment properties is an adjustable rate mortgage. It's worked out great for me. But they can also come with their own risks if they don't have the upper end cap. So it depends on the structure of the adjustable rate mortgage and what it's based on. So you could have your basis plus one. And if that basis goes to five, you know, your adjustable rate mortgage will go to six. But sometimes they're locked for five years. So there's a whole variety of adjustable rate mortgages. Uh the only one of the things I can share is that the way mine was structured, every time it recast what the interest rate would be, it was on the lower loan balance. So my payment didn't change much. But of course, different loan products can offer different risks and benefits. So it's always worthwhile to talk to a qualified mortgage lender who will tell you worst case scenario.

SPEAKER_02:

True, true. Thanks for that. And uh on the on the flip side, I guess, how are sellers adjusting their expectations or pricing in response to say today's climate?

SPEAKER_00:

We are seeing more price reductions right now. And not only are we seeing more price reductions, we're seeing sellers paying more of those concessions. Like earlier, I mentioned the two-one buy down. On a two-one buy down, the buyer cannot pay for that. The seller has to pay for it if they agree to the terms, and they're not cheap. They're you know, anywhere from let's say nine to fifteen thousand dollars, depending on the price point. So those are called concessions, and they're apply towards closing costs and or the buy downs. So that's the biggest change right now is that sellers are paying concessions that they weren't paying a few years ago.

SPEAKER_02:

Wow. And I think you you briefly touched on this earlier, but I don't know if you want to add to um, I guess the question is what long-term perspective should buyers keep in mind when rates fluctuate?

SPEAKER_00:

Well, the most important thing to know is that the real estate market and even the interest rates are a bit of a roller coaster. It'll go up, it'll go down. Historically, it'll always have that gradual incline. So I would look at how long will you be in the home? If you're gonna be in the home short term, you better be careful and judicious about what you purchase. Then what happens if you are have to move somewhere else and you can't sell your house or you can't sell it quickly? Then you have to be prepared to look at am I gonna rent it out? Do I have a good property manager? Now I have several rental properties and I've had a pretty good experience with them. Uh so there's always a way to look at it, but if they decide to keep that house and rent it out if they have to move, sometimes people want to come back here to live. And that tenant will be buying the house for them and paying down their mortgage. So it's just to be prepared for either direction and to look at am I going to be here three years? Okay, maybe not buy towards the top of my market. And so just looking at all the pros and cons, which that's why I do a lot of home consultations with them. And I do for a very positive person, I do tend to tell them, well, here's the worst thing that can happen because I want them to be prepared either way.

SPEAKER_02:

Wow, yeah, thanks for that. That's really good info. Uh, I'm sure your clarity really helps buyers feel more confident. And uh, so for that, I do want to say thank you. Well, uh, that is some really good info, and that wraps our show for today. So thanks, Lori. We'll catch you next time on Your Colorado Springs Life and Home.

SPEAKER_00:

Okay, thanks, Frederick.

SPEAKER_01:

That's a wrap for this episode of Your Colorado Springs Life and Home. Got questions? Need advice? Just want to talk about interest rates and rent accounter type? Call or text Maury at 719-332-1807. Yes, you'll really respond.com to get started with your lifetime realtor. Because when it comes to Colorado real estate, Maury doesn't just know the market. She is going to be able to do that.