For today’s topic, I’ll be discussing interest rates. Following the presidential election in 2016, interest rates have been escalating without any sign of going back down. In fact, we’ve seen them rise as high as 1.5% under certain loan programs.
Increasing interest rates signal a stabilizing economy. But if experts are unanimous in their predictions that rates will only continue to rise into the foreseeable future, what does that mean for mortgage applications?
Well, as interest rates go up, your monthly payment will rise right along with them.
This also means it’ll be increasingly more difficult for lenders to offer higher interest loans tied in with closing cost credits, resulting in what is known as “market compression”; investors are limiting the amount they pay for loans with interest rates where they are, and this inevitably leads to lenders not having the money to help offset closing costs.
Given that rising interest rates show no sign of letting up, getting into the market to buy a home sooner rather than later will be most conducive to a successful purchase.
Luckily, there are things you can do in your mortgage application to make interest rates more manageable: One way of doing this is “paying for points”, which means paying a little money up front in order to shrink your monthly payment.
One silver lining of higher mortgage interest rates is that you’ll be eligible for a greater deduction come tax season. I once spoke with an accountant who told me the best way to limit my federal income tax was to buy a bigger home. The truth is, as this particular accountant remarked to me, if you’re not paying it to the bank, you’re paying it to the IRS. The former results in living in a bigger home, while the latter is just money lost.
With resale homes scarcely available in our market, many buyers are turning to the option of new construction. If this is something you’ve considered or decided to do, you’ll want to keep tabs on where interest rates are now and where they’ll be when construction is complete. Understanding what your risk threshold is will aid you in the process.
During pre-approval, I’m often asked, “what’s my interest rate?” Because interest rates aren’t leveling out for any length of time, where they were sitting 90 days ago is unlikely to be where they are now. It’s important to keep this in mind in the pre-approval phase.
If you have further questions about interest rates, please don’t hesitate to reach out to me or my team at 352-242-1535. Have a great day!