While mortgage rates have been low by historic standards, they have begun to creep up. In 2017, they are expected to continue to increase. Many prospective home buyers might find this trend somewhat concerning. However, it could provide opportunities to home buyers that they may not have otherwise found.
To better understand what kind of mortgage/home purchase your finances can afford, consider speaking with a lender and/or financial advisor.
Here are a few reasons why the possible mortgage interest rate increases may not be as big a problem as some may think:
1. Tougher Mortgage Rules Can Eliminate Some Competition
Mortgages are not just more expensive right now due to higher rates, they are also more difficult to obtain. Lenders have instituted tougher rules in the wake of the lending crisis. When other buyers are discouraged or shut out, it may mean fewer people looking at the homes that are on the market. In the end, if a buyer is able to buy a home for less, they may come out ahead despite a higher interest rate.
2. It Isn't a Drastic Interest Rate Increase
A number of experts have observed that someone who could not swing a 4% mortgage may not have been able to qualify for a 3.5% rate, either. The general opinion is that borrowers are likely able to handle a slightly higher rate if they could qualify for the slightly lower one. In many cases, buying is still less expensive than renting, even with a higher interest rate. And, after years of paying a mortgage, the homeowner will have equity in a home. Years of paying rent does not bring the same benefits.
3. Borrowers May Still Buy Down the Rate
Many lenders allow borrowers to pay an up-front fee in exchange for a lower interest rate over the life of the mortgage loan. This is called "buying down the interest rate." If you have cash available for this option, you can save a significant amount over the life of your loan.
4. Consider an Adjustable Rate Mortgage
If you think you may sell the home in a few years, an adjustable rate mortgage (ARM) can possibly save you money. This sort of mortgage starts with a low rate that is adjusted to a higher rate after a determined amount of time.
5. Ask if Your Seller Will Pay Some or All Closing Costs
In some cases, a motivated seller will be open to paying some or a portion of your closing costs. This will free up your cash to be used for other things. If a seller is having a hard time finding the right buyer to purchase their home, they may be willing to offer a subsidy in order to get a quicker sale.
6. Mortgages can be Refinanced Later
In most cases, borrowers with good credit might be able to refinance later and get a lower interest rate. This, plus equity you have built in the home, can save thousands of interest dollars over the life of the loan. After buying, continue to work to keep your credit scores high should you wish to refinance later.
If you've been thinking that this is the year to buy, don't let rising interest rates get you down. Homeownership has benefits that a few fractions of a percentage point do not outweigh. You'll still be building equity and will probably be spending less out of pocket than you did while paying rent. In the end, owning a home pays off and helps you build net worth and stability.