Interest rates matter when buying a home because lower mortgage rates mean cheaper monthly loan payments. Though you have no control over whether mortgage rates rise in the future, there are ways you can bring down your rate such as making a larger down payment, improving your credit score and purchasing points as well as shortening the length of your loan term.
1. Interest Rates Are High
Interest rates have recently seen significant increases, making mortgages and home buying more costly and homebuying harder than before. Furthermore, higher interest rates can hinder savings accounts with attractive APYs (annual percentage yield).
Interest rates fell during 2020-2021 as a response to the Coronavirus pandemic, making it easier for first-time buyers to enter the market and existing homeowners to refinance loans. But these record low rates weren’t meant to last, and as the economy continues to recover from Covid, rates will become more expensive once more.
Mortgage rates can be affected by many different factors, including the Federal Reserve’s interest rate decisions, investor appetite and economic conditions in both the U.S. and global economies, but one of the primary influences is inflation – which tends to drive mortgage rates up or down depending on its fluctuating level. With inflation now running so high, it seems likely that mortgage rates will remain elevated for quite some time longer; making borrowing difficult for borrowers; this may explain why many are waiting until interest rates decrease before taking out loans.
2. You Can’t Refinance
Understand that mortgage rates do not always move in tandem with home prices. Indeed, they may rise more quickly than prices do and make future home purchases even more costly.
Recouping the closing costs associated with refinancing can take time; especially if refinancing to a shorter-term loan; for instance, refinancing from a 30-year to 15-year loan will lower interest payments but require you to pay more up front in closing costs.
Buying now gives you the power to lock in a low rate and start building equity quickly, while simultaneously protecting against possible mortgage rate increases that could substantially raise monthly payments and cost more over time. But there may be instances in which waiting makes more sense, for instance if you expect a windfall such as commission checks that could help with down payments; then delaying purchase might be best until that arrives.
3. You’ll Pay More
If you buy at high interest rates, your overall spending could increase exponentially over the life of the loan. A 2.87% rate, for instance, can cost about $98,530 over 30 years; that’s an awful lot of cash! So if there is a home within your price range that you know can afford the mortgage payments without waiting for rates to decrease before buying it is not advised – do it today and save yourself unnecessary costs down the line!
Though mortgage rates have increased, you still can secure an attractively low rate by making a larger down payment, improving your credit score, purchasing points and shortening the length of your loan term. Remember that rates don’t stay at 4%; they could fluctuate quickly so why wait – start searching now for your ideal home! It could be one of the best decisions ever!
4. You Can’t Get the Home You Want
Due to skyrocketing prices and mortgage rates, prospective homebuyers have been put off from entering the housing market altogether. Even if they decide to reenter at this time when rates do go down again, chances are high they’ll face stiff competition from current homeowners looking for upgrades or downsizes who already have lock-in mortgage rates that make bidding against current homeowners even harder.
Homebuyers shouldn’t obsess over what mortgage rates will do; rather, they should focus on controlling what they can, like improving their credit score and saving for a larger down payment. That way, when mortgage rates finally start falling again, they’ll be better equipped to buy and take advantage of homeownership benefits. Meanwhile, that down payment could help reduce financial strain by contributing toward other expenses like seeking raises or school tuition or starting side hustles – or simply put toward other financial commitments like savings accounts for emergencies or an emergency fund.