How Interest Rates Rising Changes People's Abilities to Qualify and Reduces How Much They Can Afford
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Are you aware of how interest rates impact how much house you can afford?
Interest rates, interest rates, interest rates. If you’re a home buyer or considering looking into lending options to purchase a home sometime in the future, you’ve probably heard people talk about interest rates like it’s nobody’s business.
Well, the reality is that interest rates are one of — if not the most — important factors you need to consider when deciding on the type of loan you’re looking to secure for your next home purchase. Since you’ll likely be making payments for
15 to 30 years, even the smallest increase in interest can cost you thousands of dollars over the lifetime of your loan. That’s why we recommend jumping on any opportunity you can to secure lower interest rates on your mortgage, especially if you’re aware of an impending interest rate hike.
When Rates Increase, the Amount You Can Borrow Decreases
When rates increase, lenders need to take a more in-depth look at your financial situation to determine what you can or cannot afford. The reality is that interest plays such a massive role in your financing journey that if rates go too high, there’s a good chance that a home you could afford last month is now something you can’t get approved to purchase the next month. It’s critical to secure financing before significant rate hikes so that you can proceed with your home buying plans. The last thing you want is to adjust your budget and find new home options because of a simple interest rate change, so be strategic about when you secure your mortgage. This is especially true for buyers looking at
JUMBO loans or second mortgages to
purchase vacation rentals.
Areas Where Home Prices Have Skyrocketed May See a Market Correction
Over the past two years, we’ve seen a housing market like never before. In areas like Lake Tahoe, where we’re based, home prices are higher than almost anywhere else in the country, but we don’t expect that to last too much longer. Considering the insane rate of inflation we’re seeing on top of rising interest rates, we believe that inevitably, areas with the largest price tags on homes will see significant market corrections and price resets in the next couple of years.
Lock in a loan while the interest rates are affordable so you can avoid being underwater on your home in just a few years.
Global Conflicts and Economic Instability Keep Interest Rates Low
The harsh truth about financial markets is that they’re incredibly dependent on the stability of our country and the rest of the world. When there are notable global conflicts — such as the terrible situation between Russia and Ukraine — banks and lenders are more likely to keep interest rates low to encourage people to continue buying homes. Believe it or not, economic instability and fear of the unknown may give buyers a much-needed break from ever-rising interest rates. In fact, at the start of March, we had our best loan pricing terms available in the last six weeks.
How Do I Stay On Top of Interest Rate Changes?
We recommend
getting in touch with Maggie and the Greenfront Mortgage team so you can have a direct contact who is always available to discuss your homebuying questions and concerns. Otherwise, the
Consumer Financial Protection Bureau (CFPB) has phenomenal resources about interest rates that you can check out throughout your homebuying journey.
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