Interest rates should never be the deciding factor in whether you buy a home, but they certainly catch your attention when notable fluctuations occur.
No industry has benefited more from the current low rates than the housing market, which was devastated by the recession. But because rate increases are gradual, you should never rush into a home purchase just because you’ve heard rates might go up.
Lenders have been predicting a rise in mortgage interest rates for years. Though we’ve yet to see this jump in rates, the looming concern about a drastic change has been strong enough that buyers and sellers are committed to the market this year, and properties are moving quickly.
If you hear the Federal Reserve is going to raise interest rates, don’t panic. Those numbers don’t translate directly to mortgage rate hikes, which are based on 10-year Treasury note yields that don’t rise as steeply.
Regarding affordability, your top consideration should still be timing. You shouldn’t be in the market unless it makes the most financial sense for your family. A good rate can’t make up for waiting until your credit is in a good place, your down payment is saved and you are prepared for a transition.
That said, if those pieces are in place, it makes sense to buy a home when rates are kind to borrowers, and now may be the time to make a move. (Some remember the days of 12 percent rates on mortgages.) Your mortgage rate does affect your monthly payment and total payoff amount.
For example, on a standard 30-year fixed-rate mortgage, the monthly payment on a $200,000 loan would be $955 for a 4 percent mortgage, as opposed to $1,074 for a 5 percent mortgage. But mortgage rates don’t rise by entire percentage points at a time, so fluctuations usually end up affecting monthly payments by no more than $20.
The best thing you can do is follow the news and educate yourself on market changes, as well as do all you can to prepare for your purchase.
Also be wary, as marketers will send a slew of information with an “act now!” hook. Don’t let temptation or a false sense of urgency get the better of you. Buying and owning real estate is a long game, and rash decisions could land you in the wrong home.
Check out all of our posts in our home buying and selling series!
The blog and its opinions are expressly that of its author and does not convey the opinions or strategies of the Credit Union and should not be considered financial advice. CommunityAmerica’s Mortgage offers are subject to credit approval and terms may vary based on conditions.