Interested in buying a house? Many prospective homebuyers are feeling discouraged with the recent rise in mortgage rates. Since the start of the coronavirus pandemic, rates have stayed under 4%—so it’s only natural that some buyers may want to wait and see if mortgage rates go down again.
Although it’s true that mortgage rates today are higher than in the recent past, it’s also true that the interest rates homebuyers now face are still low compared to historic measures. And while a rate decrease may take place—or not—by the end of the year, interest rates are only one of the many factors you should weigh when purchasing a home. Here are a few other key considerations to keep in mind.
Property Price & Down Payment
The previously low rates attracted many homebuyers, and this increase in demand translated into higher property prices. With interest rates now creeping over 6%, this trend is expected to slow. But don’t be fooled—this does not necessarily mean that property prices will go down. Fewer buyers will likely slow the overall rise in property prices, but the cost of purchasing a home won’t significantly change in the short term.
On the other hand, if rates go down by the end of the year—as many prospective buyers hope—you may be able to lower your total home buying cost by reducing your interest owed. Of course, no matter what your interest rate, there’s still the down payment to consider. Choosing a more expensive property with a lower interest rate still means more cash owed up front.
Waiting for the market to change is always gamble. Instead of waiting to start your home buying journey until the right interest rate comes along, begin planning out your budget and timeline now.
Other Expenses
Owning a home is expensive—and the upfront price of a down payment, plus monthly principle and interest payments, are only a small portion of a homeowner’s total costs.
Be cautious about maxing out your budget on a high down payment. Your new home may need renovations, or unexpected repairs and will probably need to be furnished. Many properties such as condominiums or town homes are part of a homeowners association, which charges each unit owner a monthly fee to manage shared services, such as maintenance and insurance. Keep all of these factors in mind as you consider what type of home to buy, and when. If you find a great home with the right budget today, don’t be discouraged from purchasing the property just because interest rates are higher than they were one year ago.
Moreover, it’s also important to remember that the US is currently experiencing rising inflation; leading to higher prices at the gas pump, the grocery store, and far beyond. Keep all of these other expenses in mind as you consider when it is the right time to buy a home, and what price will work best for your budget.
An Alternative Option: Refinancing
If you already own a home, but you feel the home no longer fits your needs, buying a new house is not your only option. You might also consider refinancing your current property.
Refinancing a loan means replacing your previous loan with a new one, giving you a new interest rate corresponding to the current market situation. In today’s market, there may be many homeowners whose initial interest rate was above 5%, 6% or even 7% depending on when they purchased the home and their own credit at the time. Refinancing can lower your monthly payments or provide equity, which homeowners can tap into for repairs and remodeling.
If you’re interested in refinancing, speak with a loan officer about how your interest rate and monthly payment would be affected.
What Does All of This Mean?
One of the most important takeaways is that interest rates will change. The average rate on a 30-year mortgage was 4.54% in 2018, and 3.11% just two years later in 2020. In the end, waiting for lower rates is a gamble because it’s impossible to predict the movement of the market—so homebuyers should instead look at the factors they can control. Make a budget that works for you and your family, decide on a timeline, and work with a trusted real estate professional and loan officer to execute a plan to find the best home for you at the best moment.
