Mortgage Mayhem: Fed Rate Cuts and Property Tax Shock

The Federal Reserve's recent interest rate cut has ironically led to volatile mortgage rates as the bond market adjusts. Property tax reassessments in Minnesota, Arizona, Florida and many more states are causing homeowners' tax bills to double or triple as counties update values for the first time in a decade.

• Mortgage rates experiencing volatility following Fed rate cut due to bond market adjustments
• More Fed rate cuts expected through year-end as "catch-up" for delayed action
• Property tax reassessments in Minnesota causing dramatic increases from $4K to $7K or $7K to $15K
• Strategies to manage higher property taxes include shopping for new insurance and talking to servicers about escrow options
• Tax statements with new assessed values typically arrive in October

If you're experiencing increases in property taxes or insurance, reach out to us. We can help implement strategies to keep your mortgage payment affordable, whether through refinancing or other options.

Chapters

• 0:00 Fed Rate Cuts and Market Response
• 2:54 Fed's Future Rate Drops Explained
• 4:41 Property Tax Assessment Crisis in Minnesota
• 8:10 Solutions for Increased Property Taxes
• 11:22 Insurance Options for Older Roofs
• 13:37 Tax Statements Coming in October

Transcript

Speaker 1: 0:37

It is Monday, september 22nd, and we are here with Nikki Erickson, with Kevnick Mortgage, on the Monday Market Update. How are you, nikki?

Speaker 2: 0:47

I'm doing great. How are you doing?

Speaker 1: 0:48

Lovely.

Speaker 2: 0:50

Good, good, well, happy Monday everyone. We are seeing some slight increases in mortgage interest rates this morning as a result of the Fed actually dropping interest rates last week. So what happens just as a routine for when we talk about the Fed dropping interest rates? I talked about before how that kind of perceived improvement in interest rates usually happens around the two weeks before the interest rate actually drops because it affects the bond market. So what we call that is that that drop has already been baked into the market. So what we were seeing is interest rates in the high fives, low sixes. Well, what inevitably happens is that a couple of days after the Fed drops the interest rate, the actual bond market will respond to that in like the real time or real response to the dropping of that Fed interest rate. So that bond market will actually start to increase back up a little bit. So what we're seeing today is kind of just this volatile market that's going up and down. We also are right on that 25-day average which, when we see that in the bond market we tend to have very volatile swings up and down in the market. So it should settle back down later this week. But as of today, if someone is looking to lock in their rate today or is wanting to. You know, take a look at getting rates quoted and things like that. Today's probably not the best day because we're experiencing that volatility. So just something to keep in mind as people are considering looking at different options.

Speaker 2: 2:13

With that being said, I want to talk about the Fed and their dropping of interest rates through the end of the year. So, of the voting members that are on the Fed right now as far as dropping interest rates, most of the voting members are less conservative than Powell wants to be when it comes to dropping rates. This is going to be good news long term, but as we kind of move through the end of the year, those voting members were really relying on them to keep dropping that interest rate to put the market back in line as to where it should be, and so a lot of what's going to be dropping throughout the end of the year is what we call catch up, because people are thinking that. You know, the economists and the experts are saying this should have started happening a long time ago this year. This should have been happening in, you know, february and March. You know that time frame where I think we had talked about how, yes, you know, hopefully they'll start dropping interest rates soon. So they waited a really long time, and really longer than they should have, in order to do this. So these drops that we're going to see are starting to take place from now until the end of the year. So I know I said this last week from a refinance perspective year. So I know I said this last week from a refinance perspective. We really want to see interest rates kind of ride the wave down through the end of the year before we really look at some serious options.

Speaker 2: 3:28

The other thing I wanted to talk about that's been happening, especially in Minnesota, and so you're you know I've talked to realtors who have started to get calls from clients. I started to get a lot of calls from clients in Minnesota, and this is also happening in Arizona and Florida as well, but in Minnesota in particular, the counties have started through all of this the beginning of this year that they are reassessing or reappraising the tax assessed value of your home and increasing your property taxes based on that. So the county has a right to go out and reassess your property at really any time. The times that they do reassess your property is if, like let's say, you pulled a permit for a renovation. Once that renovation is complete, they'll oftentimes send somebody out to the county to reassess value on your home to update your property taxes. Well, this is actually happening in multiple counties in Minnesota for homes that haven't had new tax assessed value since in the last 10 years. And so what people are experiencing is because October is when that new tax amount comes out for the following year, people are getting property tax statements that are doubling and even tripling their property taxes, and it has to do with the county not assessing the value of the home in the last 10 years. So, if you remember, in the last 10 years we've experienced major appreciation in homes, especially during that COVID timeframe.

Speaker 2: 4:51

And so when the county comes in and says, okay, let's say you could sell your house for $500,000, the county's coming in and saying, well, your tax assessed value is $460,000 or $440,000, where prior it was like $200,000. And so what we're seeing is a lot of catch-up. I've had people go from property taxes of about $4,000 to now around $7,000. I've had people go from property taxes of around $7,000 to now it's upwards of $15,000. And so I've gotten multiple calls and multiple people calling me saying, oh my gosh, what am I going to do? Not only did I have to take a higher interest rate when I bought the home, but now I have a $7,000 tax bill and I've got a $5,000 insurance bill. What am I going to do? So I just want to tell people that if you're experiencing increases in property taxes or increases in insurance, reach out to me.

Speaker 2: 5:40

We don't necessarily need to refinance, but there are some things that we can do to help relieve that increase in payment. One of the clients was telling me this weekend. He said it feels like, between my taxes and insurance, that I just bought another house and I'm making a double market payment. Yeah, so it's happening all over Minnesota. I've checked with people in small towns. I've checked with people in the major metropolitan area. It is happening. These values are getting reassessed and the counties are wanting more money for the property tax side of things.

Speaker 2: 6:21

That going to affect things. It just depends on your situation. We might end up implementing a refinance. We might end up saying, okay, these are some other things that you can do. One of the strategies from a refinance standpoint is yes, there is a cost to refinance. However, if your mortgage payment is going to become unaffordable because of the taxes and insurance increase. We've got to be able to implement a strategy to get that mortgage payment down. No one should be taxed out of the affordability of their home. So call me. Let's have a discussion, let's talk through different options that can get that mortgage payment back in line.

Speaker 1: 6:55

Wow, yes. So, for example, I'm in Plymouth in Minnesota and we, since we bought the house about five years ago, went from about $4,000 to over $6,000 over five years. So I don't know honestly if that's been assessed or if that's just been what's increased. That seems about average. Okay, so that's probably without an assessment happening. Yes, correct? Wow, yes, because I was just wondering what the difference is, because I know every year it goes up a little bit. But yeah, if it's still not assessed at what it would sell for.

Speaker 2: 7:29

Yeah, we're seeing $2,000 to $3,000 increases in a single year.

Speaker 1: 7:34

Wow, you know, in a gotten calls from them and it's like, wow, we have to really, you know, be cognizant of this and really help them assess what their next move is and what their next best move is agent checking in with my clients this fourth quarter coming up, if that's happened to them, what, and having them reach out to you or we can say there's things that we can do potentially that can help with this. Besides refinancing, do you have any strategies or tools or resources that you can share with us, or a couple of different direction that it might go?

Speaker 2: 8:18

So the main thing that I always do is I have them look at their insurance costs, because most of the time when your taxes go up, your insurance goes up. Insurance one is an easy correction. There's plenty of insurance companies out there and made in very affordable rates from that standpoint to help offset that. The other option is you know, like, obviously, what's your interest rate, because if you're in the upper sevens we can help you from a relief from that standpoint. The other option would be to call your servicer, talk to them about the balance in your escrow account and if you do get a letter saying here's your payment that's going up, we can talk about options to grab the overage or whatever it is you're trying to make up for and pay it in one lump sum to try to keep that payment down as well.

Speaker 2: 9:02

So, for example, if your taxes go up $3,000, that doesn't mean your escrow payment is going to go up by that much. It means they're going to assess what's in there already and how much they need to make up for. A lot of times it's like $1,000 or so, but they'll take that $1,000 and they'll spread it out over a certain amount of time to pay back and then have a healthy escrow account again. But they do also offer an option of a one-time lump sum payment of whatever that amount is, to keep the same payment, so that you can keep the same payment moving forward, or it only increases slightly and not by these big chunks.

Speaker 1: 9:30

Yeah, okay, no, that's good to know what the options is, just so that we can help our clients close on the home. If the roof wasn't newer than I, think it was 10 or 12 or 15 years, have you?

Speaker 2: 10:07

been seeing that at all. The mortgage company wouldn't close on it.

Speaker 1: 10:11

Yeah, or the lender. The lender was like the roof needs to be newer. Oh, interesting yeah.

Speaker 2: 10:18

I mean on our side, that just has to do with insurance coverage and whether the insurance is going to cover it, unless there's something materially wrong with the roof via the appraisal. So the appraiser went up there and said, hey, those shingles are curling up and this is pretty bad, and it would have to be pretty bad to be called out by an appraiser. Other than that, I can't imagine that we would say we're not gonna close on a loan where a roof is not newer than 15 years.

Speaker 1: 10:42

Yeah, maybe it was insurance not you say it was a while ago, but that's more in line with insurance it is.

Speaker 2: 10:48

And just so you know, there are companies that will still insure a property without roof coverage. So that will still insure a property without roof coverage. So, in other words, a lot of companies will say we're not going to cover anything where the roof is 20 years or older, whatever their number is, and therefore if the roof is that, we won't give them any insurance at all. There are insurance companies where you can exclude just the roof coverage and still have the rest of the third meter of the property covered by insurance.

Speaker 1: 11:13

Okay, that's good to know because that can be something definitely that I've seen people run into. And so, on the other end of that, are there insurance places that will just insure roofs, potentially, if you can't get it with your? No, okay.

Speaker 2: 11:29

No, it's just, some of them will exclude it. But no, you don't have an insurance company that just covers every RUF. They're not really there to cover the RUFs, they're there to make money.

Speaker 1: 11:40

Yeah, and RUF. It's very apparent, and it's becoming even more so, that it's not working for many insurance companies out there. So, no, that makes sense. And just wanted to ask all the questions that I know I'll get as well from people listening to this. Yeah, there's tons going on, so it's being aware, staying up to date, getting on these calls or listening again to the recording, either on Nikki's social media, mine, my podcast on Buzz Sprout or the YouTube channel. So definitely staying top of mind and having really good conversations. And if you run into anything that you don't know the answer to or that stumps you, that's a perfect time to reach out to Nikki or myself and we can either answer the question for you or get you in contact with someone. That can, for sure.

Speaker 2: 12:30

Absolutely yeah, we're always here to help.

Speaker 1: 12:32

Yeah, well, wonderful, well, yeah, that's a lot, and I'm glad that you brought that up, because I know clients that you know purchased in the last year, three years, five years. To get them ready for this or proactively get them in touch with you, would that make a difference?

Speaker 2: 13:03

Yeah, well, I mean, they can definitely get in touch with their county to see if it has been assessed. But you know, just preparing them and saying you're going to get your tax statement and if it is a huge increase, let's talk about it. Let's talk about what needs to happen.

Speaker 1: 13:17

Yep, and you said that will probably be coming in October.

Speaker 2: 13:19

It should be coming, yeah, pretty quickly.

Speaker 1: 13:21

So perfect time we're September 22nd.

Speaker 2: 13:25

Exactly October 15th is when the next tax installment is due in Minnesota, and usually those values have taken, those assessments have taken, have those assessments have taken place throughout the entire year and then they'll start sending out the next tax year's information.

Speaker 1: 13:41

Yeah.

Speaker 2: 13:42

So yeah.

Speaker 1: 13:44

Well, thank you so much for the heads up. Again, that will put us in front of a lot of agents that aren't even they don't even have this on the radar, aren't paying attention or just not thinking outside the box. So, as always, nikki, appreciate you. You're showing up, giving us this great information, things to think about and other tools in our tool belt that will absolutely set us apart and help our clients thrive in today's changing market.

Speaker 2: 14:10

Happy to help.

Speaker 1: 14:12

All right, well, until next week, everyone go out sell something, and if you need anything at all, you know where to find us.

Speaker 2: 14:18

Yep, See you everyone.

Speaker 1: 14:19

Bye.