The days of ultra-low mortgage rates may soon be over. The average rate for a 30-year fixed mortgage has been trending upward in recent months, and is now close to 4%. While this may not seem like a big increase, it can have a significant impact on home buying behavior. For buyers who are on the fence about purchasing a home, higher mortgage rates can push them over the edge into renting territory. And for those who are already homeowners, higher rates could mean refinancing becomes less attractive. As a result, we may see fewer people buying or selling homes in the months ahead. Home sellers may also feel the pinch, as higher mortgage rates can lead to lower asking prices. Ultimately, higher mortgage rates will have a ripple effect on the housing market, leading to slower growth and fewer transactions.
Why are mortgage rates rising?
There are a few reasons behind the recent rise in mortgage rates. For one, the Federal Reserve has been gradually raising interest rates over the past year in an effort to normalize monetary policy. This has led to higher rates on a variety of loans, including mortgages. Additionally, the tax reform bill passed by Congress in late 2017 is expected to lead to higher borrowing costs for consumers. The bill caps the amount of interest that can be deducted on home loans at $750,000, which will make mortgages more expensive for some buyers. Finally, rising home prices and tight housing inventory are also putting upward pressure on mortgage rates. As demand for homes continues to outpace supply, lenders are able to charge higher rates.
What does this mean for the housing market?
The good news is that the housing market has been strong in recent years, and higher mortgage rates are not likely to derail this momentum. However, we may see a slowdown in growth as higher rates lead to fewer buyers and sellers. This could lead to more moderate price gains and higher rates of rentership. For those considering buying a home, it may be wise to do so sooner rather than later. Rates are expected to continue rising in the months ahead, so locking in a low rate now could save you thousands of dollars over the life of your loan.
Different Types of Home Loans
Mortgage rates are rising, but there are still plenty of low-rate options available. Here’s a look at some of the different types of home loans you may qualify for:
With a fixed-rate mortgage, your interest rate will remain the same for the life of the loan. This type of loan is ideal for borrowers who want the stability of knowing their monthly payment will never increase.
An adjustable-rate mortgage (ARM) starts with a low, fixed interest rate that gradually rises over time. The amount of time your rate is fixed depends on the loan terms you choose. After the initial fixed-rate period, your rate will adjust based on market conditions. This type of loan may be a good option if you plan on selling your home before the rate adjusts.
If you’re a first-time homebuyer or have low income, you may qualify for a government-backed loan. These loans, which include FHA and VA loans, usually come with low down payment requirements and relaxed credit standards.
Mortgage rates are on the rise, but there are still plenty of low-rate loan options available. If you’re thinking about buying a home, consider doing so sooner rather than later to lock in a lower rate. And if you’re already a homeowner, refinancing may still be a viable option depending on your personal circumstances. Ultimately, higher mortgage rates will have a ripple effect on the housing market, leading to slower growth and fewer transactions. But the good news is that the market has been strong in recent years and is unlikely to be derailed by higher rates.