How Rising Interest Rates Can Help Homebuyers
If a real estate buy is in your near future, rising interest rates are bad news. Or so you thought. Rising interest rates are not necessarily evil, however.
This post explains how an increase in rates won’t necessarily thwart your home-buying ambitions, and how it might even help.Verify your new rate (Sep 25th, 2018)
1. Rising Interest Rates Signal Economic Improvement
The Fed raises short-term interest rates when inflation is a concern. Inflation is not normally an issue when the economy is uncertain or in poor condition.
An improving economy means more consumer activity. In fact, two-thirds of the US economy is based on consumer spending. More spending equals more jobs, higher wages, and competition for employees.
2. Investments Pay Off
Right now, stock market investors are earning excellent returns. The Dow Jones Industrial Average set records this week, topping 20,000 on January 25, 2017.
If your down payment funds are invested in stocks or mutual funds, you could hit your savings goal sooner.
You could also find yourself earning more as competition for employees heats up.
3. Rising Interest Rates Get People Off The Fence
If you’re negotiating a home purchase right now, chances are good that the seller is as worried about increasing interest rates as you are. This might get you a decent deal if you’re already in the market.
In December 2016, after the post-election jump in mortgage rates, sales of existing houses dropped 2.8 percent, according to the National Association of Realtors (NAR).
However, there is no proven correlation between increasing interest rates and falling home prices in the long term.
What happens is that when rising rates are part of an overall economic improvement, housing prices are pulled along with everything else.
More people working, more money to spend, more competition for houses — these all tend to push prices up over time.
Sooner is better than later if you’re considering a real estate purchase.Verify your new rate (Sep 25th, 2018)
4. Rising Interest Rates Make Government Loans A Better Deal
Mortgages backed by the FHA, VA and USDA have an advantage in a rising rate environment. They are assumable under their original terms.
This means that a homebuyer can “take over” the seller’s existing mortgage as long as he or she qualifies for financing.
You may be able to assume someone else’s government-backed loan at a below-market rate. There are homeowners out there with government-backed loans at 3.25 percent or so.
If you finance a house today with an assumable loan, you may be able to command a higher price when you sell, if interest rates continue to increase.
If you can offer an assumable loan at a 4.25 percent interest rate when you sell, and market rates are in the 5.25 percent range, you have a benefit that’s worth four to eight percent of the loan amount, depending on lender pricing.
You can get a higher price for your home, or sell it faster.
5. Lenders May Be More Willing
Rising mortgage rates have caused a steep drop in home refinancing, and mortgage lenders not operating at 100 percent face a decision.
They may cut profits to compete for customers, or relax guidelines in order to increase the pool of clients.
If you’re a top-drawer applicant, make lenders give you their best offer. You have options, and they know it.
And lenders with shrinking pipelines may be more willing to approve the “just-missed” applicants they turned down last year.
What Are Today’s Mortgage Rates?
Today’s mortgage rates depend on several factors. The strength of your application, type of loan you choose and the amount you wish to borrow all matter.
One major factor over which you have complete control is the number of lenders you contact. It’s a proven fact that getting several bids from competing lenders saves money.Verify your new rate (Sep 25th, 2018)