Mortgage rates have been back on the rise recently and that’s getting a lot of attention from the press. If you’ve been following the headlines, you may have even seen rates recently reached their highest level in over two decades (see graph below):
That can feel like a little bit of a gut punch if you’re thinking about making a move. If you’re wondering whether or not you should delay your plans, here’s what you really need to know.
How Higher Mortgage Rates Impact You There’s no denying mortgage rates are higher right now than they were in recent years. And, when rates are up, that affects overall home affordability. It works like this. The higher the rate, the more expensive it is to borrow money when you buy a home. That’s because, as rates trend up, your monthly mortgage payment for your future home loan also increases.
Urban Institute explains how this is impacting buyers and sellers right now: “When mortgage rates go up, monthly housing payments on new purchases also increase. For potential buyers, increased monthly payments can reduce the share of available affordable homes . . . Additionally, higher interest rates mean fewer homes on the market, as existing homeowners have an incentive to hold on to their home to keep their low interest rate.”
Basically, some people are deciding to put their plans on hold because of where mortgage rates are right now. But what you want to know is: is that a good strategy?
Lower interest rates means more competition for buyers.
The National Association of Realtors recently released data showing that for every 1% drop in interest rates, 5 million more home buyers become eligible to purchase a home. That means there will also be an increase in competing offers, which could result in buyers having to pay over asking price and waive inspection and appraisal contingencies. Those are risky strategies that require buyers to bring more cash to the closing table, resulting in a more expensive purchase than one made now with seller concessions used to offset closing costs even with a "high" interest rate.
If you’re eager for mortgage rates to drop, you’re not alone. A lot of people are waiting for that to happen. But here’s the thing. No one knows when it will. Even the experts can’t say with certainty what’s going to happen next.
The best advice for your move is this: don’t try to control what you can’t control. This includes trying to time the market or guess what the future holds for mortgage rates. If you're in the market for a new home for family or lifestyle reasons, work on building a team of skilled professionals, including a trusted lender and real estate agent, who can explain what’s happening in the market and what it means for you. If you need to move because you’re changing jobs, want to be closer to family, or are in the middle of another big life change, the right team can help you achieve your goal, even now.
Getting pre-approved for your mortgage first will ensure that you understand your purchase power and how it changes with interest rates. You should be comfortable with your monthly mortgage payment. Our team of mortgage advisors will also keep you updated with micro and macro market shifts that could affect your purchase timing, such drops in interest rates (increase in purchase power or lower monthly payments), or increases to interest rates (decreased purchase power or higher monthly payments). You can evaluate your position before making an offer on a home.
Bottom Line
The best advice for your move is: don’t try to control what you can’t control – especially mortgage rates. Even the experts can’t say for certain where they’ll go from here. Instead, focus on building a team of trusted professionals who can keep you informed. When you’re ready to get the process started, let’s connect.