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Mortgage rates are on the rise. What does it mean for homebuyers?
Mortgage rates, or the rate of interest charged on a mortgage, are primary considerations for homebuyers looking to finance a home. A variety of factors determines this rate:
- Economic conditions
- The housing market
- Down payment
- Credit score
- Debt-to-income ratio
Mortgage rates can be variable or fixed, depending on the type of mortgage you get. When mortgage rates rise, homebuyers may become concerned about their ability to finance a home loan. Mortgage rates are always changing as a normal part of the housing market and overall economy. When they rise, here is what it means for you as a homebuyer.
Rising rates can impact how much homebuyers can afford
Your monthly mortgage payment is a combination of the principal loan amount, taxes, insurance, and the interest on your loan. If you close your loan at a higher interest rate, it will likely mean that your payment will be higher than if you had a lower rate since the rate is a percentage of the principal.
If you’re shopping on a budget and have a set amount that you want to pay per month, you will have less you can spend on your home since more of your money will pay interest.
Monthly mortgage payments can increase
When mortgage rates rise, monthly mortgage payments can increase depending on what type of mortgage you have. If you have an adjustable-rate mortgage or a HELOC, you could be affected as your rates aren’t locked down. However, caps limit the amount by which rates change, so you are protected from steep increases.
If you have a fixed-rate mortgage, your rates are locked for the entirety of the loan. This results in a fixed, predictable payment—even if rates change.
Rising mortgage rates show a healthy economy
So, you might be thinking that you’ll wait until rates go down before buying a home, but that isn’t always the best strategy either. Rates tend to go down in times of economic instability or a declining market. Low-rate environments generally take place when unemployment is high, wages are stagnant, and revenue is down, so there’s a good chance that you may not be in a position to buy during that type of market. While there are deals to be found in any struggling market, only those unaffected by the other negative economic factors may afford them.
Rates are cyclical
If the timing is right for you to purchase a new home, and you can afford the cost at current rates, you shouldn’t let fear of rising rates ruin your otherwise perfect plans. One option is to lock in your rate while you shop. Guild’s Lock and Shop program* allows you to keep your rate for 90 days, even if rates go up in the meantime. If rates go down, you can take advantage of a one-time float-down option.
There is also the opportunity to refinance down the road. After you close a loan with Guild, we’ll let you know if you’re eligible for a refinance that can save you money when interest rates drop enough to give you that advantage.
While keeping an eye on mortgage rates gives you the power to make more informed decisions, the fear of fluctuating rates shouldn’t stand in the way of achieving your homeownership dreams. Like the weather, rates are something we can try to understand and prepare for but not control.
*Upfront lock-in fee required
For full Lock and Shop terms and conditions, visit www.guildmortgage.com/cap-hbe-terms
The provided information is believed to be reliable, but Guild Mortgage does not warrant its completeness, timeliness or accuracy. Guild Mortgage assumes no responsibility for errors or omissions in the information provided. By refinancing an existing loan, total finance charges may be higher over the life of the loan. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.