If there is one piece of advice we can give home buyers on the eve of escalating interest rates, it’s this: Don’t panic, and don’t act impulsively. Give yourself the time you need to find the home of your dreams and make sure it meets all of your needs. Rushing into a home purchase is never a good idea.
The sky is NOT falling. Even though rates are likely to climb somewhat in 2014, home interest rates are still historically low.
If you purchase a home this year, you’ll get a good deal on your mortgage interest rate. In the future, you’ll be thankful for the interest rate you get this year, because interest rates are likely to edge back up to more standard ranges in the years ahead.
There’s a lot of chatter these days about what type of loan you should try to get given current unpredictable interest rates. Some folks are promoting hybrid mortgage loans (fixed 5-10 year loans) for instance. You might be able to lock in an interest rate that is one or more percentage points below competing 30-year-fixed loans. If you plan to sell your home within the 10 year life of the mortgage, a hybrid loan option could save you money.
However, Bruce A. Calabrese, president of Equitable Mortgage Corp. in Columbus, Ohio advises homebuyers to lock into a 30-year fixed mortgage while rates are still under 5 percent. A 30-year fixed mortgage at 4.75 percent is still far below average rates over the past several decades.
Paul Skeens, president of Colonial Mortgage Corp in Waldorf, agrees. “If fixed rates are under 5.5 percent and you are going to live in your home for five years or more, they are still a great deal,” he says. “I’m very partial to fixed rates, since I remember when anything under 7 percent was a great deal.”
Consider the following averaged 30-year-fixed mortgage interest rates:
- 1974: 9.19%
- 1984: 13.88%
- 1994: 8.38%
- 2004: 5.84%
- 2014: 4.56%
And this brings me back to the original premise of this article: The sky in NOT falling. 2014 is a great year to buy a home–if you are ready to make the leap.
A Few Tips on Navigating Rising Interest Rates in 2014
- If you are in the market for a new home now, compare lenders to see which one has the best financing package.
- When comparing lenders financing packages, be sure to consider all costs in addition to the Annual Percentage Rate (APR). Closing costs for example, and other fees such as Loan Processing or Administration.
- Be alert for the old “bait and switch” tactic. As David Reed (President of CD Reed, Mortgage Bankers and author of Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan) says, “When loan officers can’t compete on a particular loan program or they find they can make more money on another loan, they’ll try to steer you away from your selected loan program. This defeats the whole purpose of finding the best deal. You can’t compare one loan against an entirely different loan when you’re looking for the best rate. It is imperative that you truly compare apples and apples.”
- After you select a lender, get pre-approved so that you know exactly what amount you qualify for at the current rates. Also ask your lender how rising rates will affect that amount.
- Shop for a home under your current budget, so that you aren’t nudged out of the housing market as interest rates climb.
Read Up: More on Rising Mortgage Interest Rates
- Banking My Way: Three Reasons Why Mortgage Rates Are Rising
- Bloomberg Business Week: How Rising Rates Could help the Mortgage Market
- Daily Finance: Mortgage Rates Are Rising: Do Home Owners Need to Act Fast?
- Forbes: How Rising Mortgage Rates Could Affect The Housing Recovery
- MSN Money: 6 Steps to Get the Best Mortgage Rate
- Realtor.com: Getting the Best Mortgage
- The Washington Post: Real Estate: With interest rates likely to rise, hybrid mortgages may be a good option for 2014
- Yahoo Finance: What Rising Interest Rates Will Cost You in 2014