SPOTTLIGHT —What To Do When Mortgage Rates Begin Moving Up

April 2, 2018

By Toni Spott

Toni Spott

Rates are increasing and they will continue to increase as the year progresses.

Yes, they are going up, but the sky is not falling.

The economy has nearly made a full recovery in the past ten years since the Great Recession took its toll on the housing market.

What generally happens when rates rise is that there is less of a demand for housing, which triggers a downward trend in the price of homes.

But that’s not happening now. In the current housing market, supply is short and it has been for quite a while. Additionally, due to the historically low rates over the past decade, the new mortgage rate increases have not affected the price of housing. In fact, prices are still going up, along with demand. Sellers are not being negatively affected.

Who do the rate increases affect?

They will affect everyone who wants to own a home, however, it will be a double hit for the first time homebuyer. Just a quarter percent increase will make a huge difference in the monthly payment, relative to the amount of the down payment. So with that larger payment, first-time homebuyers will have less buying power as mortgage rates increase. They now may have to set their sights on a lower-priced home.

For those who want to sell their home and purchase another, they will now have a higher interest rate, as well. Their home-buying power will be affected just as it will be for first-time buyers. Odds are they currently have a mortgage with a 3 to 4 percent interest rate on a 30-year fixed mortgage. Yet rates continue to be historically low. So all things considered, it is still a good time to lock in on a rate, even though the new rates will be taken with a grain of salt.

Inflation is another reason rates go up. When the economy is good, workers are getting raises, etc., and that can stimulate an increase in consumer prices.

Things could be far worse. It could be 1981 when a mortgage could come with an 18 percent interest rate. So look at the current rate increases as a wake up call. If you haven’t refinanced recently, now is the time to do it, and if you are thinking about buying a new home, now’s the time to do it.

According to the website Mortgage Reports, in the middle of the 2007 economic boom, 30-year rates climbed close to 6.75 percent. During the 1999 boom, rates crept higher than 8 percent.

Mortgage Reports observes that mortgage rates could rise to 5 percent in 2018, if the current economic expansion continues.

Hoping for all the best for all of you.

Toni Spott Sustainable Agent, Keller Williams Realty;
Facebook: TheToniSpottTeam;

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