There’s a big reason not to wait for lower mortgage rates
You might end up regretting your delay.
- Mortgage rates have risen significantly since the beginning of the year.
- Some home buyers might consider waiting for interest rates to fall.
- This could be a big mistake considering you could refinance in the future.
Mortgage rates on a 30 year fixed rate loan are currently over 5.70% and are likely to rise further. With interest rates on the same loan being below 3% not too long ago, some homeowners may be reluctant to buy a property because loans have gotten so much more expensive.
While it may seem wise to put off a purchase until mortgage rates fall, there’s an important reason prospective homebuyers probably shouldn’t.
Here’s why waiting for lower mortgage rates might not make sense
There’s one simple reason you probably shouldn’t put off buying a home just because mortgage rates are high right now.
If you get a mortgage loan at a high interest rate, you likely have the option to refinance your home loan if interest rates turn out to be falling. But if you wait to buy a property hoping interest rates will go down, you can’t go back and retroactively reverse your mistake and borrow at today’s rates if they don’t.
Nobody can predict where interest rates will go. However, with the Federal Reserve likely to hike rates again to combat persistent inflation, the most likely outcome is that rates will continue to rise for the foreseeable future.
You don’t want to look back and regret not borrowing at today’s rates now when home loans are getting more and more expensive. And when interest rates do fall, refinancing should be a simple matter of shopping around and securing new credit at a reduced rate.
Should you buy a home at today’s prices?
Mortgage interest rates have a big impact on the cost of buying a home, but ultimately they shouldn’t be the deciding factor in your decision to buy a home.
Mortgages are typically cheaper than most other types of debt because they are secured loans. And interest can be tax-deductible for those who itemize their taxes instead of claiming the standard deduction. Also, homeowners generally have higher net worth than renters because you can acquire equity by paying off a mortgage loan, and you end up owning a valuable asset while paying rent does not.
You don’t want to put off home ownership forever and forego the wealth-building benefits of ownership in the hopes that interest rates will go down. That’s especially true since you have the option to fix things later by refinancing if it turns out you got a mortgage at the absolute worst possible time, but you don’t have the option to go back in time if it turns out that the Interest rates go down. So the most important thing to think about is whether you are currently financially ready.
If you have good credit, minimal other debt, a generous down payment, and money for emergencies, the home purchase route might still be the right choice even with a higher-yielding mortgage loan in the end. You just want to make sure that your loan payments are affordable for you now and in the future — even if that means buying a slightly smaller house than you’d hoped.
Once you’ve moved into your home, you can start building equity and see if interest rates go down. At this point, you can take action to reduce the cost of your home loan.
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Mortgage rates are rising – and fast. But they are still relatively low by historical standards. So if you want to take advantage of interest rates before they get too high, you should find a lender who can help you secure the best possible interest rate.
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