Megan Woissol | July 19, 2022
You’re hearing it on the news, seeing it on social media, and listening to the people around you panic over rising interest rates. Headlines read “Interest Rates are on the Rise!” Now, you might be worried about what this means for your home purchase – should you put it off and wait until rates go down? What do higher interest rates really mean, at the end of the day?
What is a loan “interest rate”?
Interest Rates are the annual cost of the loan to the borrower expressed as a percentage. The interest rate is the interest that you will pay on the original mortgage amount amortized over the life of the loan and they are often quoted in .125% increments.
Your monthly payment is made up of principal, interest, taxes, and insurance. Principal, is the payment paid directly toward the balance of the loan amount. Interest, is a secondary cost that is based on a percentage of the original loan amount. Property taxes and insurance are paid as part of your total mortgage payment to your loan servicer. These payments are held in an escrow account with the servicer, they will make the payments on your behalf to the county and insurance company when they are due.
It is true that a higher interest rate causes a higher mortgage payment, but does this mean you should wait to purchase a home?
We don’t have a crystal ball, and market projections are not guaranteed. No one really has any way of knowing what will happen with interest rates or with the housing market going forward. What we do know with certainty is that today, interest rates have leveled out to pre-pandemic levels and that the housing market has slowed down. Homes are sitting on the market for much longer and buyers are seeing more opportunities to ask for seller concessions, which can be used for closing costs or to buy down your interest rate.
Some other options to get a lower payment include:
- Work with a mortgage broker who can shop your rate
- Make a larger down payment
- Purchase a property in a lower price range
- Shop your homeowners insurance
- Be aware of property taxes, as different zip codes can offer lower annual taxes
- Find a realtor offering buyer rebates that can be used similar to concessions, buying down the interest rate or covering closing costs
A skilled mortgage broker will be able to work with you to review all your options and stay on budget. If your realtor is an expert negotiator, there are many things they can do to help you get a house in your budget and with any concessions you may need.
Many buyers are intimidated by higher interest rates, which means less competition as you are shopping for homes. Interest rates are a hurdle and not a barrier – our team will arm you with the knowledge you need so you’re ready to go out and buy a home.
Interest rates fluctuate with the market, once you have owned the home for at least 6 months, if interest rates have decreased, you can take advantage of one of our refinance programs – most of which are completed in just 21 days.
*when all documents have been submitted