You may possibly be in a whole generation of people that have never known what a normal mortgage rate might be. And, that would be because mortgage rates have been kept artificially low by the Federal Reserve since 2010. Not to mention, most of the rest of adults here in the U.S. have forgotten what the average rates were in the 60’s, 70’s and especially the 80’s when mortgage rates hit 18.45%!
The bottom of the market was February 2021 with 30-year fixed rates were 2.73%. Current rates, as of February 10th, according to Freddie Mac, are at 3.69%. Earlier predictions by NAR, FNMA, Freddie Mac, and MBA were that rates would go as high as 4.00% by the end of the year.
There is a possibility that those rates are low, based on concerns about inflation and the federal government’s efforts to keep it under control. After all, the Fed did announce a series of policy rate increases for the balance of the year. And, in anticipation of the rate hikes, mortgage lenders have already started raising their rates. We’ve seen those increases since January 3, 2022.
There could be a quite significant difference in buyer’s payments within a year from now – as it is possibly that 30-year fixed rates could be at 5% or higher. That difference could be quite an impact especially compounded with rising prices.
A $450,000 purchase price today with a 90% fixed-rate 30-year mortgage at 3.69% has a principal and interest payment of $1,862 a month. If things continue to heat up and the mortgage rate goes up by one percent while the price increases by ten percent, a year from now, the home will cost $495,000 and the payment would be $446 higher each month for the term of the mortgage.
One suggestion right now is to use the cost of waiting to buy to make projections on the price home you want to buy based on your own estimate of what interest rate and appreciation will do in the next year.
If you act now, it causes the payment to get locked in at that lower rate. Plus, the increase in value belongs to the buyer as an equity build-up. Unfortunately though, when you take the state of supply into consideration along with the demand on housing inventory, waiting to purchase will move that bar higher and higher, causing some buyers to not qualify.
For more information, download the Buyers Guide.
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