Buying a Home at High Mortgage Rates

high interest rates

Mortgage rates are increasing, so would this be a good time to buy a home?

If you approach a realty expert and ask what is the best time to make an investment, they will answer “Right Away”. As mortgage rates and property prices increase, the agents will ask you to make quick choices. Greg McBride, Chief Financial Analyst at Bankrate believes that mortgage rates can increase and decrease without any notice. A few months ago, the benchmark for three decades was 3.6%. Now, the figure has reached 4.18%. This means you will be paying an extra of 22,000 USD for a mortgage of 200,000 USD.

The Bond between mortgage rates and housing prices

Mortgage rates are increasing. Meanwhile, housing prices have gone down. This means the impact goes beyond mortgage rates. When mortgage rates are on the rise, housing prices are likely to fall low. The prices can reach pre-crash levels. This is why buyers consider it as a good time to make investments. Some service providers tend to increase their loan amounts too! They fine-tune the mortgage terms and conditions. These make the loans less risky for financial institutions. Loan limits are changed slightly. Buyers in expensive areas will have more access to a mortgage than the rest.

Few Critical Questions

If you plan to buy a property when mortgage rates are increasing, you must think twice! Always begin by examining your finances. Nobody wishes to spend more money on interests. When interest rates increase you don’t have to rush and make an investment. Here are few questions that can help you make a firm decision:

  • Are you able to save periodically? In an ideal situation, you will be able to save every month. May it be down payment, premiums or closing charges, you should be able to save! The new home must not consume your saving plan. Never skip saving for a new home. The interest rates and additional charges will lock your finances.
  • Can you afford an expensive home? Stretching your capabilities and buying a new home may seem challenging. Yet, there is so much to foresee. Do you see a new family? Do you see your family grow in the next few years? If yes, will be property be worthy? If you are going to spend more because the home is big, you will end up regretting!
  • McBride believes that huge homes are cash-intensive investments. Without proper savings, you will not be able to “move forward” in life. In fact, you will find it difficult to buy a car too.

Even as mortgage rates rise and the prices of properties drop, you should think with your future in mind. How long are you planning to stay in the new home? Or, are you buying to rent out? There are many perks in owning a property. For example, you will receive tax breaks and build equity. Homes comes with independence and a sense of financial responsibility. But, you should live in the property for at least five-years to reap maximum returns (especially when you buy at high mortgage rates).

A twist to the story

On the whole, high mortgage rates represent a stronger economy. And, a country’s strong economy always favors the real estate industry. When interests rise and economies grow, you will be able to make more income. If this is the situation, go ahead and make an investment.

Most people buy properties emotionally! After all, this is one of the most emotional investments you can ever make. But, if your income growth is not driven by the economy, you must think again.