Concerned with possible mortgage rate increases? That’s only natural. After all, you’ve probably saved up for a long time for your home’s down payment. You may have even taken a long time to research the area you want to live in and are waiting patiently to find your dream home. So, it’s no wonder why you may be worrying about rising interest rates. Buying a home is a very big decision. Here’s what you need to know about the costs of owning a home in a rising rate market.
Rate Increases May Not Affect Total Home Costs
Mortgage rates tend to follow the federal funds rate, which is determined by the Federal Reserve. In theory, rates rise when inflation is also on the rise. While a higher interest rate means that the total cost to purchase a home is greater, there is some debate in the industry about whether higher rates may actually correlate to lower home prices. Some people argue that higher rates mean less demand for homes, which means lower prices. The bottom line is short-term interest rate changes should not force a decision on whether to buy a home or not. But if you are thinking about buying a home today, you can at least be comfortable in the fact that rates are at a relatively low level compared to pre-2008.
Fixed Rate Or Variable Rate Mortgage?
A fixed-rate mortgage means that your rate will be locked in for the duration of your loan and never changes. In contrast, a variable rate mortgage means that you could get a lower rate but it could change in the future. Choosing the right mortgage is very important.
You’ll need to consider how long you plan on staying in your new home when deciding on which type of mortgage is the right choice for you. If you plan on staying in your home for a long time (say, five or more years), it often makes sense to lock in an interest rate now with a 15 to 30 year fixed rate mortgage. That way, you can enjoy today’s relatively low-interest rates without having to worry about higher monthly payments in the event of future rate increases.
If you’re only planning on living in the home for a few years, then a variable rate mortgage could be a good choice, since you’ll likely move into a new home before rates go up. Ultimately, you need to have a down payment ready and talk to a qualified mortgage professional to determine what is the right choice for you.
Be Prepared For Higher Costs
No matter how well you prepare, you can never predict what may happen after you move into your home. You may need to make extensive repairs or find that the costs to maintain the home are higher than you anticipated. It’s always a good idea to have a buffer in your emergency fund just in case you find your expenses are higher than you had originally budgeted.
If you ever need extra money down the line and have built up some home equity, you can always consider taking advantage of a home equity loan program or a home ownership investment.
Even if you haven’t purchased a home yet, prepare a budget for monthly payments now and one for possible rate increases. If you go with a variable rate mortgage, make sure to check all communication from your loan company to ensure you understand how much warning you’ll get for possible rate increases. Being prepared ensures that you can afford to stay in your home no matter what happens.
There you have it, everything you need to know about the costs of owning a home in a rising rate market. If you live in South Florida and need a real estate lawyer, contact The Law Offices Of Patrick L. Cordero at (305) 445-4855 for a free, no-obligation consultation.