How Much Do Mortgage Rates Really Matter?

This is a question home buyers have been asking since mortgage loans were created. Do mortgage rates really matter that much?

The answer is a complicated “yes” and “no.”

Yes, they do matter in the sense that you want to try and qualify for the lowest mortgage rate possible, and your monthly mortgage payment amounts will be directly affected by your fixed interest rate.

And no, your mortgage rate should not be the only factor you consider when you are thinking about buying a new home. There are other reasons why most any time is a good time to invest in real estate, and there are advantages and disadvantages relating to both high and low mortgage rates.

Yes, Mortgage Rates Matter

First, let’s look at why mortgage rates matter. When you apply for a 30-year fixed rate mortgage loan (whether it’s conventional, FHA, USDA, VA or some other loan program), you qualify for a set interest rate. That rate will be locked in for the entire 30-year term of your mortgage loan. Your monthly mortgage payments are comprised of a certain amount of loan principal, plus interest, taxes and other loan fees. Therefore, a higher interest rate will mean higher monthly payments, as well as a higher total amount of interest paid over the life of the loan.

So, of course it’s nice to qualify for a lower mortgage interest rate and reduce your overall interest payments. This is why you want to make sure your finances are order before applying for a mortgage loan. Work to increase your credit score (aka FICO score), pay down other high-interest debts, have a steady employment/income situation, and save up for a larger down payment. All of these factors—and more—will impact your qualified mortgage rate.

Mortgage Rate Timing

Obviously, timing of your mortgage application and home purchase will also be important. Mortgage rates fluctuate on a daily basis and the current average interest rates will be the basis for every loan applicant. They tend to stay relatively higher, lower or in average ranges for longer periods. The daily fluctuations will be minor, but can make a difference overall when the rate is applied to a 30-year loan and 360 monthly mortgage payments. Talk with your lender and get pre-approved for your mortgage loan. This will allow you to lock in the best possible rate when the timing is right.

No, Mortgage Rates Don’t Matter That Much

Now, we can look at why mortgage rates may not matter so much in the grand scheme of things. Remember, a mortgage loan is a means to make a major purchase. Buying a home is one of the biggest—likely the biggest—investment you will ever make, and there are so many financial and emotional benefits of being a homeowner. It is the American Dream for a reason.

Owning real property comes with great tax benefits and your mortgage allows you to gradually pay for the purchase of your home with affordable monthly payments. You have zero ownership of the property when you are renting. You are just paying someone else’s mortgage and/or putting money into your landlord’s pocket.

The Power of Home Equity

You will also be earning home equity the longer you own your property. You will be paying down your mortgage principal each month while the home’s value increases over time. Home equity gives you more lending leverage in the future if you want to refinance or borrow cash that can be used for home improvements or paying down other high-interest debts. Or, it gives you more profit potential when it comes time to sell your house and move onto a new home (ideally something bigger and better).

There is rarely ever a bad time to own a home, even when mortgage rates are relatively high. The long-term gains are well worth it as long as you can afford your monthly mortgage payments and other homeownership/living expenses.

You can also look at how mortgage rates affect the real estate market (and vice versa). Periods with really low mortgage interest rates (like 2020-2021) created a very tough market for home buyers. There was a lot of competition for few homes, so buyers were paying high prices and making other questionable sacrifices that could end up haunting them in the long run. Buyer demand and competition usually slow down in higher-rate markets, giving home buyers more time to think and be smart when making purchase offers. Sellers may be more willing to negotiate reduced prices or other buyer benefits.

Loan Refinancing Options

Lastly, you are getting a 30-year mortgage loan, but that does not mean you are stuck with the same loan for all 30 years. There may come a time in the future when mortgage rates drop again. You can then look into refinancing your home loan at a lower rate. You can reduce your monthly payments with a new loan, or potentially shorten the loan term to pay it off sooner. You can get into your dream home now and then consider refinancing if and when it makes sense.

So, the answer to this question is not so simple. Mortgage rates do and do not matter, depending on how you want to look at things. If now is the best time for you to buy a home, then you shouldn’t let mortgage rates stand in your way. If not isn’t the right time, then the mortgage rates probably don’t matter anyway. Make your move when it’s right for you!

If you are ready to buy a home in the Atlanta area and want to get pre-approved for your mortgage loan, contact Moreira Team | MortgageRight today. We’ll be happy to answer any questions you have and show you how your qualified mortgage rate will affect you.