3 Reasons Why You Shouldn’t Let Interest Rates Control Your Buying Timeline!

Mortgage interest rates inherently have a large impact on the real estate market as a whole and they are, of course, a factor when a homebuyer is thinking about their buying timeline and considering how much they can afford to spend on a home. Mortgage rates affect buying power because as the rate increases, the interest portion of your monthly payment goes up, leaving you less money that goes toward the actual principal, which in turn affects how much you can qualify for. 

It’s not new news that rates have been on an upward trend for some time now and they are currently hovering at around the 7-7.2% mark. Contrasting these numbers with the ones buyers saw shortly after COVID hit (plummeting to all-time lows in the 2-3% range), it’s no surprise that many buyers are feeling a little reluctant to buy now and lock in at these higher rates and many are opting to put their search on hold to sit on the sidelines and wait for rates to come back down. The challenge with taking this approach though is that no one has a crystal ball and you usually don’t know whether or not you’re getting the best rate until they’ve already gone up, so waiting could derail your plans for longer than you’d thought or leave you in a worse spot that you’d hoped. Lower interest rates also tend to bring about some other challenges that many people don’t even consider. 

So if you or someone you know has been on the fence about whether you should buy now or wait for rates to return to lower levels, here are a few reasons why waiting for rates to come down might actually not be to your advantage like you think:

1. The Risk of Competition in the Market

Of course every buyer hopes they can take advantage of a great interest rate, much like waiting for home prices to come down. As interest rates have risen, many buyers have put their searches on hold, whether that’s because of the effects the higher rates have on the amount they qualify for or if it’s because they just don’t want to commit to an interest rate that is higher than what they could have had or currently have if they already own a home. Whatever the reasoning is, as those buyers leave the market it actually creates an advantage for those that continue their search because there is less competition! Less competition means more room for negotiations and the addition of inspections into the contract that likely wouldn’t be accepted if you were battling it out with tons of other offers. 

2. Lower Interest Rates Increase Home Prices

One thing not everyone takes into consideration is that as interest rates go down, home prices tend to rise. This is for two reasons - first because when rates are low, more buyers enter the market and the increase in demand correlates to higher prices paid. Secondly, back to our conversation on buying power, when rates are lower the amount that a buyer has to spend on their principal goes up since not as much of their monthly payment is going towards interest, thus increasing the amount of house they can afford to buy. This is why, historically, when rates are lower, we see prices increase. So while well-intentioned, it can actually be counterproductive to wait for the interest rates to go down because you could just end up spending more money on the home itself. 

3. Mortgages Can Always Be Refinanced

One thing is certain and that is that mortgage rates will always go up and they will always go down, the challenge is that you never know when that will be or which direction they’re headed in next. So the good news is there is always the option to refinance! As we mentioned above, the return of lower rates will inevitably bring about increased home prices, so the benefits may not offset that change in home price, resulting in little to no real gain for you. However if you can buy when rates are up and home prices have stabilized a bit and then refinance when rates inevitably do go down, you’ve positioned yourself in a great spot - not to mention you’ll have gained equity during that time too! Looking into rate rebound programs is a great way to plan for this - CMG Home Loans has a great program that saves you tons of money by allowing you to refinance for free for up to five years. This will make it easier for you to move into the home you love now and then have the option in the future to refinance if the rates decrease. Talking to your lender about programs like this will help you understand the options you have, and is a great way to move yourself forward now and also plan for the future so you’ve set yourself up in the best way possible. 

So don’t let all the talk and information out there about high mortgage rates deter you completely - there actually are some benefits to buying when rates have gone up and market conditions might not be as ideal as you’d hoped. Like with anything, there are both advantages and disadvantages no matter when you buy or at what rate, so it’s important to consider all the factors and not let interest rates alone impact your decision too heavily or keep you from reaching your goals! Ultimately, whatever you choose is what’s best for you, and we’re here to help no matter what that timeline looks like. If you want to get more info about the current interest rates and find out if now is a good time to buy for your particular situation, reach out or if you decide you're ready to start your search, take a look at our blog with 5 Tips for House Hunting when Interest Rates are High!