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It’s no secret that mortgage rates have gone up significantly in 2022. We experienced record low mortgage interest rates in late 2020 and early 2021—insanely low rates we may never see again because of the unique economic conditions created by the pandemic.
Some home buyers regret not buying sooner while the rates were still low. However, the truth is there are still many reasons why it makes sense to buy a house or condo right now. The interest rates we have currently are closer to historic mortgage averages. They seem really high because of what we had available just a couple years ago, but they really aren’t. Those conditions were simply not sustainable and the market has corrected itself this year.
It’s also important to look at several other factors when buying a home. Mortgage rates shouldn’t be the only thing driving your decision to make a home purchase.
Yes, rates were much lower in 2020 and 2021. However, the buyer demand was through the roof because borrowing money was so cheap. This led to rapidly increasing home prices because there was so much competition for any property that was listed. It didn’t matter if the property was in bad shape or if the seller was asking for too much. Buyers were willing and able to pay more because the lower mortgage rates allowed them to borrow more.
Home prices were high and many buyers ended up making questionable concessions with their offers. People were waiving home inspections and accepting terms that were to the seller’s advantage. They may have gotten lower interest rates, but they did not always end up with good deals.
Home prices today are still going up, but the rate of appreciation has decreased dramatically. Prices aren’t going up as quickly as before and this helps offset the higher cost of a mortgage loan that comes with a higher interest rate.
In addition, you are competing with fewer buyers. Buyer demand has dropped as mortgage rates have risen. You have more leverage when making offers and won’t have to make questionable contractual concessions. The number of sellers making price reductions has also gone up in Atlanta (and nationwide), so you may even be able to negotiate a price below asking or receive some seller credits/concessions that you would not have gotten a year or two ago. You can take a little more time to think about your offers and avoid bad buying situations that often come with rushed decisions.
Another thing to consider is that mortgage rates could come back down some as inflation recedes. The Federal Reserve is always adjusting the Fed Rate based on what’s happening with the American economy. Mortgage rates will continue to rise and fall daily as they always do. You may get a mortgage loan now with a higher rate, but then you could be in great position later to refinance when interest rates are lower. A 30-year fixed rate mortgage gets you into your dream home right away. Then, you refinance with a lower rate and/or shorter term in a few years. If you wait until rates are lower before you buy, you could miss out on a great opportunity. It’s never really a bad time to buy property. Home prices will continue to go up steadily (even if at a lower appreciation rate). You will gain home equity as you pay down your mortgage, which gives you even more leverage as a borrower when it’s time to sell or refinance.
Adjustable-Rate Mortgages (ARMs)
If you don’t want to go through the refinancing process, you can ask your mortgage lender about an adjustable-rate mortgage (ARM). These loans are different from fixed-rate mortgages, which offer a fixed interest rate over the entire life of the loan. An ARM essentially adjusts with changing market conditions. When rates are up, your mortgage rate (and thus your monthly mortgage payments) will go up. When rates are down, your mortgage rate and payments will come down. An ARM self-corrects based on prevailing average mortgage rates in your area.
It is important to understand that adjustable-rate mortgage loans offer more risk to the borrower—especially if you expect mortgage rates to rise even higher before they eventually come back down. In many cases, however, an ARM ends up paying similar average rates over the life of the loan compared to a fixed-rate mortgage in “normal” market conditions.
Of course there are many pros and cons with ARMs and it can be more of a roller coaster ride that some prefer not to take. Just remember it is another option to talk about with your mortgage lender.
We mentioned home equity earlier, and this is the number one reason why it makes sense to buy a home right now. You will gain equity as you pay down your mortgage loan and as the property’s value appreciates over time. Home equity is the best way for the average American to make money. Real estate will rarely ever be a bad investment, especially if you are able to keep up with mortgage payments. High mortgage rates may be a small price to pay if you are able to start building up great home equity now. Then, the home equity will only give you more borrowing leverage if you ultimately decide to refinance your mortgage or sell your home and move up into something bigger.
Mortgage Rate Options
To discuss your mortgage lending options and get pre-approved for the lowest possible rate as an Atlanta area home buyer, contact Moreira Team | MortgageRight today. Let us help you navigate this tricky mortgage market and achieve your dream of homeownership!