Low interest rates typically mean that buyers have more purchasing power, and that home ownership is more accessible than ever before. But is the time truly right for you? Falling rates bring more new homeowners into the marketplace and tempt existing homeowners into upgrading, moving, or refinancing, but what’s right for everyone else may not be right for you.
Learning more about what low rates mean for your personal circumstances and mortgage possibilities will help you determine if the historically low mortgage rates we are experiencing are just too good to ignore. If you’re wondering if the time is right for mortgage refinancing or to begin the homebuying journey, we’ve provided some good-to-know information to help with your decision.
At the beginning of the year, we saw mortgage rates begin to fall considerably — to the historically low, noteworthy rates we are currently experiencing. Now that Fall has arrived, experts predict that rates will continue to fluctuate. Since interest rates impact the entire home mortgage and real estate industry, they are closely monitored, and it is easy to discover what the current federal rate is at any given moment.
When rates drop, consumers are more likely to borrow, simply because the cost of doing so is less. For some, it becomes a buyer’s market, with banks competing for business and attention from prospective buyers with many choices. More choices for buyers mean that banks need to bring more to the table and that they need to compete for business; when rates are low, home refinancing becomes a popular consideration, as existing homeowners take advantage of the more affordable costs.
Lower rates also mean that consumers may be able to pay off mortgages more swiftly, giving them more spending power, even after taking out a new loan due to a reduction in the term.
Home prices tend to become more affordable when rates drop as there are likely more people shopping for a home. For lower income families, low rates may remove a barrier to entry to the home buying market.
If you are in the market for a new home or considering refinancing your existing home, you may be able to do so more affordably now than at any other time. Banks will also be hoping to secure customers, so lending terms and other details may be more appealing while rates are low.
You’ll likely have more buying power, because less money will be applied to interest than with higher rates, leaving more capital available in your budget each month. If you are otherwise prepared and ready, now may be the time to consider purchasing a home or refinancing your existing mortgage.
One of the most common errors homeowners make during a low interest period is choosing the wrong type of mortgage. If you choose an adjustable rate mortgage (ARM) while rates are low, then your rate is almost certain to go up after the fixed rate period ends. Loans that require a balloon payment at the end (which often means securing another loan or refinancing) may not be the best solution when rates are low. Buying now with a loan that you plan to be refinanced in a few years may be problematic, considering rates may not stay at this low level for long.
Overcommitment and excitement about the homebuying process could lead to taking on more of a loan than you can afford. Make sure the loan is truly suitable for your finances now and your expected income in the future.
If you are considering making a large purchase, like buying a home, then low rates can mean good news for you. Tracking mortgage trends and interest rates can help inform your decisions to enter the housing market or refinance your current mortgage. To learn more about refinancing and new mortgage opportunities, find your local LO to discuss your options.