What Will Happen With Mortgage Rates?
The real estate market has been red hot over the past year. Over the past year, home values have been soaring. People have been rushing out to buy houses in spite of the fact that the available inventory of homes to buy has been incredibly limited. Rising home values have been fantastic for homeowners who have seen their equity grow as buyers go through bidding wars to buy new houses. Much of this huge demand for home purchases has been fueled by historically low mortgage rates. Rock bottom mortgage rates have been the fuel for the real estate market’s revved up engine. Since that is the case, what does the future hold for mortgage rates and what does it mean for the market? The team at Peoples Choice Mortgage is here to walk you through some of the important things to be aware of when it comes to mortgage rates.
Why Do Mortgage Rates Matter?
Mortgage rates are incredibly important for homeowners. They dictate how much interest you will owe on your home loan over the life of your mortgage. A small change in rates can have a large impact on how much you spend on your house. To demonstrate the impact of small changes in mortgage rates, it is helpful to look at a hypothetical.
If you were to get a $300,000 mortgage for a home, you will end up paying more over the life of the loan because of interest accrued. How much interest is entirely based on your mortgage rate. Let’s look at what happens if you get a mortgage rate of 2.81% versus 3.31%. On face, it seems like a small difference. Afterall, it is only a .5% difference. However, in terms of monthly payments and how much you will pay over the lifetime of the loan is significant. That .5% difference in interest rate translates into a difference of $82 each month in payments and $29,520 over the life of the home loan. Clearly, that is a huge difference! It pays to lock in low interest rates while you can.
Why Are Mortgage Rates At Or Near Historic Lows?
There are multiple factors that go into how mortgage rates are determined including the overall health of the economy and inflation. One of the biggest factors that determines mortgage rates is the interest rates set by the Federal Reserve. As the coronavirus pandemic took over the United States nearly a year ago, the Federal Reserve slashed interest rates to boost lending and the overall economy. The goal was to make lending more attractive, so that individuals and businesses would continue to spend in the face of an economic downturn. Unfortunately, the pandemic has persisted and so have the economic troubles it has caused. However, one silver lining has been that the Federal Reserve has committed to keeping interest rates low as long as the economic pain continues. This is part of the reason why mortgage rates have continued to remain at or near historic lows.
What Does The Future Hold For Mortgage Rates?
The theory of gravity is pretty clear that what goes up must come down. When it comes to interest rates, what goes down must come up. Interest rates and mortgage rates will not remain low forever. Given the fact that the Federal Reserve is keeping interest rates low in order to blunt the economic downsides of the pandemic, paying attention to the pandemic is important. As we start to get a hold of the pandemic and as we see signs of the economy improving, that might be a key indicator of rising mortgage rates.
There is a chance we are already starting to see the beginning of this upward creep. We have been seeing a variety of good signs related to the pandemic and the economy. Vaccination rates are increasing at the same time as cases and hospitalizations have declined. At the same time, we have seen unemployment claims decrease. There also seems to be a good chance that millions of Americans will be receiving more economic stimulus to get through the economic hardship. These are all very good signs and hopefully it points to the turning of the tide in the battle against the virus and its economic fallout. It is possible that we might see mortgage rates increasing in the near future on the back of all this positive news.
Final Thoughts
Ultimately, we are not in the prediction business. We are in the independent mortgage broker business. Economic forecasts are tricky. Nothing proves this more than the slew of predictions that came out in the beginning of the pandemic. In March of 2020 there were many prognosticators who predicted that the housing market would crash as a result of the pandemic. As we all know, the opposite happened.
While we cannot be certain about future changes to mortgage rates, what we can be certain of is that today’s mortgage rates are great for anyone who can qualify for them. Since we do not know what tomorrow will bring, it makes sense to take advantage of today while we still can. As we showed up above with our hypothetical, locking in a good mortgage rate can save you a lot of money over the life of your loan. How long today’s rates will last is anyone’s guess. This means if you have been thinking of buying a house it makes a lot of sense to act now rather than wait and risk rising rates.
If you want to see what kind of mortgage rates you might qualify for and do not want to wait to see what tomorrow brings, contact us! The independent mortgage broker professionals at Peoples Choice Mortgage will provide you a complimentary mortgage qualifier to see exactly where you stand. We will help you analyze your current financial situation and help you understand how close you are to having the home of your dreams. The important thing is to act now! The sooner you take steps to act on your dream, the sooner you are to making it a reality.
