With home prices on the rise and mortgage rates hovering around 7%, prospective homebuyers can understandably worry they might be priced out of the market. Unfortunately, waiting for mortgage rates to decline might not be the best strategy.
Investing now makes sense for various reasons, chief among them: 1. Interest rates will likely continue to increase over the coming years.
1. It’s a Good Time to Buy
Financially prepared is the optimal time and place to purchase a home – that means having a strong credit score, no debt obligations and savings savings account. Furthermore, making sure your new mortgage payment doesn’t exceed 25% of your take-home pay is key too!
Mortgage rates have steadily been climbing since the coronavirus pandemic began, driving housing prices higher and restricting loan availability. This has caused increased pessimism about homeownership with the Home Purchase Sentiment Index revealing more people feel it’s an inappropriate time to purchase property.
However, if you’re ready to make the jump into homeownership, now may be the time to act in order to avoid increasing costs and interest rates. Once the market stabilizes you may be able to find exactly the property that meets your budget without another party buying it first. Furthermore, homeownership brings many financial advantages such as building equity and tax deductions.
2. It’s a Bad Time to Buy
As a prospective homebuyer, now may not be the ideal time for you. Rising mortgage rates have reduced homebuyer demand and thus made homes more costly than previously. Therefore, it makes more sense to wait until mortgage rates decrease significantly before making your purchase decision.
Low inventory levels and rising home prices have made it increasingly challenging for potential homeowners to locate and afford an appropriate property. Furthermore, mortgage interest rates have seen increases as part of the Federal Reserve’s efforts to rein in inflation.
Fannie Mae recently conducted a survey which revealed that record numbers of Americans believe now is not an ideal time to purchase real estate. Yet this also presents opportunities for would-be buyers; declining affordability has reduced competition among home hunters while sellers may be more open to negotiations. If you can afford it and do not have other pressing financial obligations, now might be an opportune moment to purchase your home.
3. It’s a Good Time to Refinance
Refinancing could save money, depending on your unique financial circumstances and goals. Refinancing is usually beneficial when your credit score has improved since purchasing your home and rates are more favorable than what is being charged now.
Refinancing can come with closing costs that could take years to recoup through savings in monthly mortgage payments and additional potential advantages of refinancing such as consolidating debt and paying off credit card balances.
Though mortgage rates have increased since 2020, they still represent an attractive option compared to historical standards and offer an opportunity to refinance your home. Refinancing can help lower interest rates, drop private mortgage insurance premiums, shorten loan terms or access home equity for other financial needs – making refinancing an important financial decision and must be carefully considered before moving forward with it.
4. It’s a Bad Time to Refinance
Refinancing can save money – particularly if you shorten the duration of your loan. But it is important to realize that credit score and debt-to-income ratio play more of a factor in what rate is offered than current Federal Funds Rate or average loan rates.
Refinancing can be an expensive financial undertaking, so you should only undertake it for the right reasons. A general guideline states that refinancing makes sense if it lowers your mortgage rate by at least one percent.
Be wary of refinancing too soon after purchasing your home. Refinancing too early could result in double closing costs payments, prolonged breakeven points and possible prepayment fees incurred upon extending your breakeven point by years or incurring prepayment fees incurred upon increased loan amortization periods that could potentially cost thousands in additional interest charges and repayment costs – this should never be taken lightly!