Now is the Time--Interest Rates are Rising

Over the past decade since the last housing crash, interest rates have been low, offering easy access to credit. However, rates have been increasing ever so slowly, and projected to keep increasing this year.  According to Pat Holsten at American Security Mortgage, "In 2017 it was possible to lock in a 3.5% interest rate on all kinds of loans.  Today it's rare to find 4.5% interest rate on even a conventional loan.  A 1% Interest rate increase on a $300,000 house fixed for 30 years will make the payment $175 more per month which is $2,100 more per year!"    

According to REALTOR Magazine, the official magazine for the National Association of Realtors, “Mortgage rates are at their highest levels in more than 4 years.” However, the Federal Reserve said it is likely to raise short-term interest rates this year, which could “prompt mortgage rates to move higher at least three times this year, starting this month.”

So what does this mean?

Simple—it means that if you are in the market to buy a home, now is the time to decide!

With rising mortgage interest rates, comes an increase in the cost of buying a home as well. For prospective home buyers, this could make buying a home even more of a challenge. Buyers would potentially need to settle for a smaller home, a fixer-upper, or in a location farther out where real estate tends to be cheaper.  As interest rates increase, the lower the amount you can get approved for.

Who else does this affect?

The first set of buyers it would affect is first-time home buyers. According to realtor.com, “First-time buyers and those on the tightest budgets are likely to be affected the most. Even a 1 percentage point rise in rates would mean 5% of all buyers would no longer be able to qualify for a $300,000 mortgage, according to a 2016 John Burns study (Rates were only 3.47% when the study was published.).”

And with all of the changes happening in the interest rates, it has the potential to sway current homeowners to stay put. Instead of putting their home on the market to opt for a larger, more updated home, they may instead choose to make improvements to their current property, resulting in fewer homes on the market—especially ones that first-time home buyers have more of an ability to afford.

This kind of cause-effect relationship can really affect the momentum of the housing market.

If you’re buying a home, consider locking down your interest rate with your mortgage provider.

If you’re worried about the increase in mortgage interest rates, why not consider locking your rate in? Much like credit cards, most of the time it is only good for a certain amount of time, but at least with all the current changes projected to happen, you can rest easy knowing your rate is guaranteed (even if it’s only temporary) once your offer is submitted.

There are downsides to rate locks, however—one being that not all rate locks are free so you may pay unwanted fees just to secure the interest rate, and the other being that if rates were to potentially fall, then because of that lockdown on the rate, the buyer won’t be eligible for the reduced interest rate. 

 

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