advice hub

Should I buy a home when interest rates are high?

Benefits of an ARM

A high interest environment could work to your advantage

Rising interest rates affect how much a buyer can afford by increasing monthly mortgage payments. But don’t let that keep you from buying a home. The most important thing to consider is when it’s the right time for you to buy.

Trying to time the market can often lead to stress. So, let’s take a look at some surprising advantages of buying a home in this type of environment and our insider tips to keep your monthly payments within your budget.

Less buyer competition

When rates are low and there’s more competition for a home, buyers may choose to offer more than the listing price to increase the chance of their offer being chosen by the seller resulting in a higher mortgage. The higher the loan amount, the higher the monthly payments will be.

When interest rates go up, often times there is less competition from other buyers, which could force home prices to go down ultimately giving you a lower monthly payment. Less competition also means being able to make an offer closer to the listing price with a good chance of being chosen by the seller.

As a buyer, this type of environment could offer you more choices for your budget and can reduce buyer risk and stress.

Ask about lowering your interest rate by buying mortgage points

Mortgage points, also known as discount points, are fees paid to the lender for a reduced interest rate.

Basically, you pay some interest up front in exchange for a lower interest rate over the life of your loan. Each point you buy costs one percent of your total loan amount.

Buying points to lower your monthly payments may make sense if you select a fixed-rate mortgage and plan on owning the home after reaching the break-even period, which is the time it takes to recoup the cost of buying points.

When determining if this is the right choice for you, remember to consider how much cash you have for your down payment, closing costs, mortgage points, and how much you want to keep in your emergency savings.

Lock in your rate longer

Some lenders offer a mortgage rate lock, which allows buyers to secure an interest rate while the loan is being processed. Some extended rate locks range from 120-180 days, which means regardless of what’s happening in the economy, your interest rate will stay the same while you wait to close on your home.

Refinance when rates start to drop

If it’s the right time for you to buy a home, but the interest rates are higher than you’d like, always remember you can look into refinancing later when rates go down. Acting now to get the right home is worth paying a bit more in interest in the short term.

Keep an eye on the market and reach out to your mortgage lender to talk about refinancing when rates start to go down.

Bottom Line

While rates are an important piece to consider when buying a home, the most important thing to take into consideration is when you’re ready to buy. Consider when you need more space, have enough for a down payment, or most importantly, when you can afford the monthly payments.

To get started, reach out to a Mortgage Advisor near you today. Our experts are ready to answer your questions and guide you through the process from start to finish.