Getty Images
The last inflation A report released this week shows that inflation was higher than expected in March, indicating that the stubborn problems that have plagued the economy over the past two years are still far from being resolved. This unfortunate news then caused mortgage rates to climb in tandem, pushing the average 30-year mortgage rate above the 7% mark.
Today’s higher mortgage rates mean that cost of buying a house just got more expensive. And mortgage rates are rising at a time when housing prices are considerably high. So, if you’re a potential buyer, sticker shock may make you think twice about moving.
But even with today’s higher cost of borrowing, it could still make financial sense for many people to take out a mortgage. Below, we’ll detail some reasons why it might be worth taking action now.
Learn more about the best mortgage rates available to you here.
Why it might still make sense to buy a house
If you’re considering putting your home purchase on hold until today’s high mortgage rates end, you may want to think again. Here’s why:
Mortgage rates could rise further
While 7% may seem like a high mortgage rate, it’s important to keep in mind that rates could continue to rise if inflation remains stubborn. Many experts expected a rate cut a few times this year from mid-2024, but recent inflation reports make this less likely as expected. In fact, a Fed official said in a recent interview that rates may not fall at all in 2024.
And the Federal Reserve has made clear that it is prepared to be aggressive in its fight against rising prices. So, even if the reference rate is currently pauses at 23-year high, there is no guarantee that it will stay there. With inflation still high, it’s still possible that another rate hike could occur in the coming months unless something changes.
This means that if you wait to buy a home, you could end up with even higher mortgage rates down the road. But by setting a mortgage rate today of around 7%, you are effectively protecting yourself against the risk of rates rising even higher.
Compare your mortgage options online now.
You have the option to refinance in the future
Buy a house now doesn’t mean you’re stuck with a high mortgage rate forever. If you take out a mortgage at today’s higher rates, you still have the option to refinance at a lower rate in the future if and when rates begin to fall. This gives you a potential hedge against rising rates and gives you the flexibility to potentially lower your monthly payments down the line.
Historically, mortgage rates have tended to fluctuate widely, so it’s certainly possible, and even likely, that we’ll see a return to lower rates in the years to come, especially if the Fed can bring inflation under control. And, by buying a house now, you will benefit from a still relatively low rate. low by historical standardseven if it is higher than what we have become accustomed to in recent years.
You’ll start building equity in your home
Owning a home also offers the opportunity to build equity over time, giving you a smart way to build wealth or borrow money in the future. Even if you end up paying a higher interest rate on your mortgage, the principal you pay back each month will still contribute to an asset you own rather than going to the landlord.
And your home equity can be leveraged in the future through a home equity loan Or Home Equity Line of Credit (HELOC), or it can be used to finance the purchase of a new home later. In a rising real estate market, the value of your home is also likely to appreciate over time, increasing the equity you build.
You will benefit from fixed monthly housing costs
By purchasing a home now, you can also guarantee a fixed monthly mortgage payment that won’t be subject to the vagaries of the rental market. After all, rents have been rising in many parts of the country over the past few years, and there’s no guarantee that this trend will reverse any time soon.
But by purchasing a home, you can avoid the risk that your monthly housing costs will continue to rise due to rising rents. If you opt for a fixed rate mortgageyour mortgage payment will remain the same throughout the life of the loan, providing more stability and predictability to your monthly budget.
The essential
While today’s higher mortgage rates may come as a shock to many potential buyers, there are still reasons why it might still make sense to buy a home now. By locking in a mortgage rate, building equity, and avoiding the uncertainty of the rental market, you could set yourself up for long-term financial success, even if it means paying a little more interest in the short term.
Grub5
