NWAOR: How to Navigate Rising Interest Rates | News, Sports, Jobs
A rapid rise in interest rates has some buyers wondering how higher borrowing costs will affect the housing market.
Although Freddie Mac reported that interest rates in April exceeded 5% for the first time since 2011, the mortgage giant also said it expects “the market for buying single-family homes remains strong in 2022 despite rising mortgage rates”.
The organization’s April 18 quarterly forecast report predicts that while demand and prices will moderate somewhat, housing demand will continue to be strong. Freddie Mac also expects the 30-year fixed rate mortgage to average 4.6% in 2022 and 5% in 2023.
“While the sharp rise in mortgage rates will lead to a precipitous drop in refinancing applications in 2022, housing demand remains solid, propelled by the large number of first-time homebuyers and prospective buyers looking to block a mortgage rate before rising further,” Sam Khater, chief economist at Freddie Mac, said in a press release.
For buyers looking to enter the market, here are some tips for navigating a housing market with higher interest rates:
Shop for a mortgage
Finding a mortgage is important at all times, but it’s especially imperative as borrowing costs rise. You can save thousands of dollars on a mortgage just by shopping around.
Be sure to talk to several lenders and get quotes from each. Compare the rates and fees on the loan estimate forms received from each lender. The Consumer Financial Protection Bureau provides a number of resources on consumerfinance.gov that will help you compare loan offers.
Another way to save is to learn about options for different mortgage terms. For example, 15-year mortgage rates are often lower than 30-year mortgage rates. An adjustable rate mortgage or ARM can also be cheaper if you only stay in the house for a certain length of time, such as three, five or seven years.
Contact your lender regularly
Interest rates fluctuate often, so you’ll want to communicate with your lender regularly about rate changes. If your lender reports favorable prices or a drop in rates on a particular day, be prepared to lock in your rate as the market can change quickly.
You’ll also want to talk to your lender to find out if a rate hike will affect your qualification and the amount they’re willing to lend you.
Finally, ask your lender if there are any special mortgage programs, such as those that don’t require mortgage insurance, that might help lower your monthly payment.
Get into a rescue position
Even with the recent rise in mortgage rates, buyers are still navigating a very competitive housing market due to housing shortages. One strategy that can help you secure a home is to be a fallback buyer, which means you would be in line to buy the home if the current buyer pulls out before closing.
As interest rates rise, this strategy can be effective as more buyers may pull out due to higher borrowing costs. Some may also find that they can no longer afford the house.
If the house you love is going to another buyer, ask if the seller is accepting replacement offers. If so, work with your realtor to secure a backup contract and be prepared to step in if the original buyer cancels.
Consider all the factors
Even though interest rates are higher than their record lows of the past two years, rates at 5% are still low from a historical perspective. And the difference between payments may be less than you think. For example, assuming a 20% down payment, the monthly payment for the median-priced home in Weber County increases by about $200 when going from a rate of 4% to 5%.
You will also want to consider the costs of waiting before you buy. These include higher house prices and rents in the future, possible increases in interest rates and the missed opportunity to increase home equity.
For more advice on buying in today’s market, contact a local North Wasatch real estate agent. Find one that specializes in your field by searching the online directory at NWAOR.com.
Stephanie Taylor is the 2022 President of the Northern Wasatch Association of Realtors.