Mortgage Rates Are Trending Up – Should You Worry?
Unless you plan to buy your home with cash (lucky you!), it’s important to know what’s going on with mortgage rates these days. The bad news is that they are rising. The good news is that they have been at historic lows since the housing market crashed nearly 10 years ago — and they are still low. But since they probably won’t stay this way forever, let’s take a moment to learn what rate hikes could mean to you.
Should you hurry to buy a home?
When rates start to rise, homebuyers often rush to buy a house — in theory, these buyers are hoping to get into a new home before rates go any higher. But Ralph McLaughlin, Trulia’s Chief Economist, advises against this. “Don’t rush,” he says. “Buying the wrong home can be a costly mistake to fix. Mortgage rates are just one of many factors that go into the decision to buy a home — and it certainly shouldn’t be a deal breaker,” says McLaughlin.
How does an increased rate affect loan payments?
would have to hit 9.1% before renting becomes cheaper than buying a home in most major markets,” says McLaughlin. “Even in the most expensive markets, rates would need to be over 5% to tip the scale on the rent versus buy math.” If you think you might move in five years, there are ways to get a lower interest rate (if you qualify). You could take on a five-year adjustable-rate mortgage, which could get you a lower interest rate — plus rate increases at years four and five.
What about the price of a home?
There’s good news for some homebuyers when interest rates increase. Yes, you read that right. Increased rates often mean a decrease in the number of potential buyers — and that can bring down home prices. For instance, even if you have to pay $100 more per month because of a rate increase, things could still balance out — or you could even come out ahead — if you get the home for less.