What Do Rising Mortgage Rates Mean for Buyers?
It can feel jarring to see the same kind of mortgage candidate qualifying for a 7% mortgage when they would have been given a sub-3% rate one or two years ago. However, rising interest rates are a good way to slow inflation and avoid runaway high prices for homes. If you’re the buyer who is facing a 7% interest rate or higher, however, can you still buy a home? The answer is yes! You just want to plan carefully for this purchase, especially starting with a savvy real estate agent who has been tracking the market well.
As a Buyer, Can You Handle a Higher Mortgage Rate?
Realistically, there will always be buyers who are right on the edge of affording a home in their desired location. Unfortunately, a higher interest rate can price us out of the homes we’re currently considering. However, you don’t need to despair: while you regroup and consider what is now affordable, you can continue to save toward a substantial down payment. You can also save toward your mortgage “runway,” or money you keep in a savings account for potential emergencies that ensures you can pay your mortgage even if you have a month or two of lower than usual income.
One Approach: Opt Into More Affordable Housing
There are a variety of ways to find a more affordable home. Often, buying an older home and slowly renovating or adding to it can be a way to go ahead and begin building equity while periodically doing projects on the house. You can choose a more affordable location, or you can opt for a smaller home in many cases. Realize that some of your “nice-to-have” home features may be possible in the next few years if you choose to rent for a little while and continue to save toward your home purchase.
Realistically, Rates Cycle, and a Refinance Can Help
If you do opt to buy at the top end of your affordable range, you can do a few things to create more financial security. When possible, trim your budget to create a little room to add to a “mortgage runway” savings account, so that even a big mortgage bill isn’t as stressful, since you know you have a backup way to pay it during a bad month.
The other truth is that rates usually don’t stay high forever. Many times, the market cycles back down during the life of a 15 or 30 year mortgage. At this point, you can apply to refinance your mortgage, often saving a lot in interest for the remainder of your loan. This can free up some cash flow moving forward.
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