Mortgage rates are rising steadily for the first time since the Great Recession. So what does this mean for buyers now and in the future?
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.
How does an increased rate affect loan payments?
It’s important to note: The higher rates we’re currently seeing probably won’t be game changers for most people. In truth, mortgage rates would have to hit 9.1% before renting becomes cheaper than buying a home in most major markets. 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.
Will there be more rate increases?
No one knows what the future will bring, including what will happen with mortgage interest rates. Most experts expect rates to continue to increase, but those increases could be minimal. A rate increase will probably be felt most by people in expensive markets whose budgets are already stretched. Buy margins are slimmest, but won’t have any noticeable impact in the rest of the country.
Will getting a loan be more difficult?
The potential for rising interest rates might make you wonder whether you can even qualify to buy a home. The good news is that the current mortgage rates probably won’t make a difference. When it comes to qualifying for a mortgage, how rates are trending really doesn’t matter. What does matter is your credit score. However, if a higher interest rate would change your status from qualified to declined, there are things you can do. These households will either have to put a larger down payment on their dream home or find one that is less expensive.
It’s also important to comparison-shop. If you no longer meet traditional loan guidelines because of higher interest rates, you may need to keep searching until you find a lender who can work with you on a low down payment or flexible underwriting options.
[showcaseidx shortcode encountered an error]