Rates have been rising in recent weeks and spiked following Chairman Jerome Powell’s speech last week where he indicated the Federal Reserve may hike rates more aggressively to combat inflation.
However, that doesn’t necessarily mean you should put a pause on your homebuying or refinancing plans.
Rates are high compared to the all-time lows they hit during the pandemic, but they’re still relatively low, and have yet to reach the highs seen in 2018, when they threatened to top 5%. This means that homebuyers who are ready can still move forward with their plans to purchase, and homeowners with high mortgage rates can still potentially snag a lower rate with a rate-and-term or cash-out refinance.
Robert Heck, vice president of mortgage at Morty, says it’s important for buyers to consider the big picture beyond current rate increases, including their long-term financial goals.
“While the rate increases over the past month may cause some buyers to reduce their budget, this may be a sign that their budget may already have been stretched and that they may need more time to improve their financial profile,” Heck says.
Is it better to rent or buy right now?
Whether you should rent or buy depends on current costs in your area and your lifestyle. In some areas of the country, it’s possible to get a mortgage with a monthly payment that’s lower than the average rent — but that’s not true everywhere, especially if you’re in a high-cost urban area.
If you’re worried about your rent continuing to increase and are looking to fix your monthly housing costs, it might make sense to look into buying a home. While rents can go up year after year, if you have a fixed-rate mortgage, you know you’ll be paying the same amount every month for as long as you have your mortgage.
“No matter what you do next year, if you have a one year lease, the landlord has the ability to raise your rent even further,” says Ralph DiBugnara, president of Home Qualified and senior vice president of Cardinal Financial. “At the very least, if you lock in on an interest rate, you can stop that rise.”
How are mortgage rates determined?
In general, mortgage rates tend to be high when the US economy is thriving and low when it is struggling. Mortgage rates reached historic lows during the pandemic as the Federal Reserve eased monetary policy to boost the economy. But as the central bank works to fight inflation, rates have been increasing and have surpassed 4%.
“Some industry benchmarks are now above 4.5% for the first time since 2019, but the Fed shifts and guidance should stamp out some of the volatility tied to forward policy we’ve been seeing, barring any escalation of the conflict in Ukraine, which the Fed notes is still highly uncertain,” says Heck. “Since the Fed meeting, the market has also shifted upward to price in one to two additional rate hikes in 2022, in response to rising oil prices and additional inflation concerns.”
Your mortgage rate will be influenced both by current rate trends and factors you can control. With a good credit score, low debt-to-income ratio, and substantial down payment, you can secure a better rate.
How do I find personalized mortgage rates?
Some mortgage lenders let you customize your mortgage rate on their websites by entering your down payment amount, zip code, and credit score. The resulting rate isn’t set in stone, but it can give you an idea of what you’ll pay.
If you’re ready to start shopping for homes, you may apply for preapproval with a lender. The lender does a hard credit pull and looks at the details of your finances to lock in a mortgage rate.
How do I compare mortgage rates between lenders?
You can apply for prequalification with multiple lenders. A lender takes a general look at your finances and gives you an estimate of the rate you’ll pay.
If you’re farther along in the homebuying process, you have the option to apply for preapproval with several lenders, not just one company. By receiving letters from more than one lender, you can compare personalized rates.
Applying for preapproval requires a hard credit pull. Try to apply with multiple lenders within a few weeks, because lumping all of your hard credit pulls into the same chunk of time will hurt your credit score less.