Anyone who is in the market for a new home or is considering refinancing their current home loan is probably keeping a close eye on interest rates as you’ve undoubtedly heard that interest rates have been on the rise over the past few months. After all, interest rates are one of the most critical factors in determining the cost of your mortgage. It’s essential to pay attention to this trend and understand how it may impact your plans.
With that in mind, let's take a look at how recent changes in interest rates might impact your plans to buy a home or refinance your mortgage.
To start off, what is an interest rate? The interest rate is the percentage of a loan that a lender charges. This can vary depending on the type of loan, the length of the loan, and the prime rate. The prime rate is the interest rate that banks offer to their most qualified customers. The current average rate for a 30-year fixed mortgage is just over 4 percent, while the average rate for a 15-year fixed mortgage is 3.5 percent. For many homeowners, these higher rates may put their plans to refinance on hold as they now have to contend with a higher monthly payment.
Mortgage rates are highly sensitive to changes in the prime rate, so when the prime rate goes up, mortgage rates usually follow suit. This causes monthly mortgage payments to become more expensive for homebuyers. As such, it's important to stay ahead of the curve and monitor interest rates closely if you're planning on buying a home or refinancing your mortgage in the near future. If you have already been approved for a mortgage, your interest rate is locked in; however, if you have not yet been approved, you may want to consider doing so sooner rather than later.
What can you do if rising interest rates will impact your budget?
If you are worried that rising interest rates will make your monthly mortgage payment too expensive, there are a few things you can do. One option is to extend your mortgage term from 30 years to 40 years. This will lower your monthly payment but increase the amount of interest you pay over the life of the loan. Another option is to put more money down as a down payment. A larger down payment will lower your loan-to-value ratio and may qualify you for a lower interest rate. You could also shop around for a more competitive mortgage rate by working with a different lender.
In addition to knowing how recent changes in interest rates might affect your own plans to buy or refinance, it's also important to be aware of how these changes can impact your negotiating power.
For example, let's say you're in the market for a new home and you've found the perfect property but you're not sure if you can afford it. In this case, you may want to try and negotiate with the seller for a lower purchase price since rising interest rates have made homes more expensive than they were just a few months ago.
On the other hand, if you're selling your home and you find yourself in a situation where there are multiple offers on the table, you may have some room to negotiate since potential buyers are likely feeling the pinch of rising interest rates as well.
All in all, recent changes in interest rates are something that all potential homebuyers and those looking to refinance their mortgages need to pay close attention to. By monitoring rates closely and being aware of how they can impact both your own plans and your negotiating power, you'll be better prepared to make decisions about buying or refinancing a home in today's ever-changing market. Work with a trusted lender to find the best option for you and lock in a great rate before they go up any further!
If you’re looking to sell or buy, connect with us here, we’d love to help you find your perfect match.