Blog Post

After the historically low interest rates in 2020 and 2021, it is understandable why many homebuyers get cold feet when considering whether to buy a new house. Having lower interest rates means a lower monthly payment and more savings. However, waiting for better interest rates has its own set of risks to consider. When navigating today’s housing market and interest rates, there are some important things to think about.

Interest Rate Predictability

It is incredibly difficult to predict what the mortgage interest rates will be in the future. We can make educated guesses and follow the trends, but ultimately there is no guarantee what future rates will be.

One factor that you can control when it comes to your mortgage interest rate is the state of your finances and where you choose to apply for a mortgage. Paying off other debt will increase your credit score and likely lead to a lower interest rate. Also, explore what payments would be at shorter terms such as 15- or 20-year mortgages. If the monthly payments are affordable, both options will lead to lower interest rates and less overall interest paid on the mortgage.

In addition to these individual factors, there are market factors at play. Although the Federal Reserve does not set mortgage rates, most financial institutions take their cues from the Federal Reserve when setting their rates. The Federal Reserve adjusts the rates based on current economic factors. When there is a significant increase in demand, Federal Reserve interest rates tend to increase too. If demand decreases, the Federal Reserve tends to respond with decreasing interest rates.

Impact on Overall Mortgage Cost

Higher interest rates mean higher payments and paying more on your home loan over the life of the loan.

Hope for Homebuyers

The current interest rates and home buying market can feel overwhelming, but there is hope for homebuyers. When lower rates come, and they will come, most borrowers can take advantage through mortgage refinancing or, even better, a loan modification.

Refinancing pays off the current mortgage with a new mortgage that has the new interest rate locked in. It can significantly reduce your monthly payment and how much you will pay over the life of the mortgage. Refinancing costs vary depending on the size of the loan and the financial institution used. On average, the cost runs around $2,000 - $3,000.

A unique benefit of both mortgage and vehicle loans at MembersAlliance is the ability to do a loan modification. If interest rates go down and you are paying above market rate for your loan, instead of going through the complete refinancing process, for a small fee ($250 for mortgages, $25 for auto loans) the credit union will adjust your loan to the current market rate. This key benefit can save members thousands of dollars over the life of their mortgage.

Note: Loan adjustments are only available for mortgages that are already held at MembersAlliance. Moving a mortgage from another financial institution would be considered a refinance.

Should I wait for lower interest rates?

The real answer to when is the right time to buy a home? is when you are financially ready. Buying a house is a big commitment that comes with incredible rewards. It builds wealth, unlike renting, is a great way to get more connected to your community, and you get to make the space your own.

The most important factors to consider before buying a home are your finances, job stability, and whether you’re prepared for homeownership, regardless of the current interest rates and housing market. If you feel prepared and find the right home, it might be the right time to make your move. A great way to determine if you are homebuyer ready would be to talk with a Mortgage Specialist. They can help you go over the numbers, determine how much mortgage you can afford, and discuss what options are available to you.