If you’re thinking about shopping for a new home, you may be concerned about recent trends in mortgage interest rates. They’ve been moving up and are expected to rise even higher later this year.
When they do, home payments will increase. On a $300,000 house with a 30-year fixed mortgage and 20% down payment, the difference between 4% and 5% is $142 a month. That could be enough to make some prospective purchasers settle for smaller homes, fixer-uppers, and homes in cheaper neighborhoods — and there’s nothing wrong with that.
From a historical perspective, mortgage rates are still low. They averaged around 7% from the 1990s through the financial crisis, and dropped below 5% for the first time in March 2009, before bottoming out at 3.1% in 2012. Recent rates (4.43% for 30-year, fixed-rate loans as of March 1) are about the same as those in 2014.
But mortgage rates are expected to continue increasing throughout the foreseeable future. One big factor is the short-term interest rate set by the Federal Reserve. The Fed is expected to bump up rates at least three times this year, in 0.25% increments, beginning this month. Mortgage rates usually follow any increases from the Fed.
So for the best mortgage rate, it’s time to get off the fence about home shopping. Your rate this spring won’t be as good as last year’s, but it will probably be better than you’d get if you wait. Rates are still low, but they won’t stay low forever. So, if you’re going to buy, sooner is better than later.
You can also protect yourself from rising rates after making an offer. A rate lock guarantees the rate between contract submission and closing. Locks are good for a specified amount of time, but are not always free. Unforeseen delays in closing and significant contract changes can also increase the cost.
I’d be happy to refer you to a reliable mortgage broker to discuss current rates and rate lock options (at no financial advantage to myself). I would of course be delighted to meet with you to talk about how I can help you begin your search for a new home.
Chart Source: Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, March 25, 2018.