Buying a Home Before the Next Interest Rate Hike

    In June the Federal Reserve raised the interest rate a quarter of a point as a reflection of how well the economy is doing. The unemployment rate hasn’t risen in more than 6 years and other favorable signs in the economy point to good things ahead. While this wasn’t unexpected, as they had suggested in mid-2016 that that they would slowly raise the rate in 2017, the frequency of these rate increases (this being the third time this year) has some future homebuyers concerned about what this means for their buying power. If you find yourself in this category, keep reading to learn what you need to do to buy a home before the next interest rate hike.

    Don’t panic. The WORST thing you can do at a time like this is to buy a home that you don’t love just because you’re scared of mortgage costs going up! While a .25% increase in interest rates certainly does affect your total mortgage rate, it may affect it less than you think. For example, on a 30-year fixed rate mortgage at 3.92%, the monthly payment would be $1,418. If the rate bumps up to 4.17% (a .25% increase), the monthly payment would be $1462 per month, an increase of just $44 per month. While that can make a significant difference over the lifetime of your loan, it shouldn’t put you into panic mode.

    Adjust your price range if you need to. While you don’t need to panic, you may need to take the cost increase into consideration and adjust your price range accordingly. For example, on the example we used above, the monthly increase of .25% resulted in a $44 increase per month, which adds up to be an additional $528 per year. If you start to get nervous about this price increase, you can simple lower your price range to a place where you’re comfortable and start your search there.

    Get serious about your search. The rising interest rate may just give you the boost you need to get serious about your home search. If you’ve just been casually looking but hope to buy in 2017, make sure your finances are in order and that you’ve been pre-qualified (not just pre-approved) for a loan so that when you find a house you can move quickly.

    Lock in your interest rate. Generally interest rates can be locked up to 90 days, although you may have to pay extra in order to get an extended lock on the rate. While most buyers wait until a home is under contract to lock in their rate some choose to do it earlier for various reasons. Be sure to talk to a mortgage lender early on in your search to determine what makes the most sense for your situation.

    Shop around. Even with the Feds raising their interest rates, you will find that different lenders will be raising their rates at different speeds. Because of this, you will still want to shop around and find the best rate for your particular mortgage. Terms and fees can vary widely from lender to lender so make sure you’re looking at the big picture of the loan and not just the interest rate itself.

    We here at Exit Murfreesboro want to get you into your dream home before the next interest hike! Contact us to let us know how we can help.

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