Throughout the past couple of days, news of rising mortgage rates have dominated news headlines. As a result, many potential buyers and current homeowners have expressed concern about the future of the housing market and pressed pause on their home purchase or refinance. For many, however, pausing the home buying or refinancing process may not be the smartest decision. With rates expected to continue rising, it may be best to consider closing sooner rather than later. Here are our mortgage tips for today’s rising rates.
Focus on paying off high-cost debt
The Federal Reserve is likely to raise interest rates again this year, which could ultimately affect any existing debt. In fact, even the slightest rate increase will lead to higher APR on credit cards and other debts that have a variable interest rate. Prior to paying off any small outstanding debt, it’s therefore important to focus on high-cost debt - especially if you’re in the market to buy. This is because when you apply for a mortgage, your lender will evaluate your debt-to-income ratio for mortgage approval. Typically, the more debt you have, the more difficult it can become to qualify for a mortgage. If you already own a home, consider slowing down on paying off your mortgage. Instead of scrambling to make additional payments on your fixed-rate mortgage, apply this money towards paying off larger debts or maxing out tax-exempt or tax-deferred savings like IRAs.
Consider a fixed-rate loan instead of an adjustable-rate mortgage
With mortgage rates expected to continue rising, consider getting or refinancing to a fixed-rate mortgage. A fixed-rate mortgage is a home loan in which the interest rate will remain the same throughout the life of the loan, which most often lasts 15 or 30 years. An adjustable-rate loan, in turn, will have fluctuating interest rates. As mortgage rates rise, you will therefore experience an increase in the amount you spend on mortgage payments. To avoid higher fees, talk to your local lender about approval for or refinancing to a fixed-rate loan before rates rise again this year.
Don’t wait for home prices to drop
Last month, a record low number of homes were put on the market, which led to a greater gap between supply and demand. With more buyers in the market and fewer properties to consider, it’s therefore important to move quickly when you find a home that works for you. Waiting for home prices to drop may lead you to miss out on a more affordable home buying opportunity.
Overall, if you are in the market to buy or considering a refinance, make sure to begin this process sooner rather than later to avoid any increase in rates. For more information about mortgage rates, or to learn more about home financing in general, contact one of our mortgage specialists today.