When it comes time to buy a home, there are certain factors you add into your affordability equation. First, there’s the price of the home. There’s also the closing costs. And moving costs. Plus the home inspection. And you definitely cannot ignore the current interest rates.
Interest rate: This is the percentage that you pay to your mortgage lender for lending you money. This amount is in addition to the amount that you borrowed. The smaller the interest rate, the less you pay with each payment and over the life of the loan. Your interest affects whether or not you can afford to buy a home.
For most of 2017, the current interest rates have stayed below 4% – which is great! But that can breed complacency. Interest rates can go down…and on the flip side, they can also go up.
According to Freddie Mac – an entity that buys mortgages from lenders and sells them to investors – the average rate for a 30-year fixed mortgage grew. It started at 3.95% at the beginning of January 2018, and moved up to 4.15% by the end of the month!
And the general consensus is that rates will continue to rise. Just look at these predictions:
So it seems that the possibility of rising interest rates, which had been looming, might actually be here to stay.
Why the Move?
Why the sudden change in current interest rates? Why are major housing groups predicting a continued increase?
It’s simple – mortgages rates are low. They have been low for too long, and the market has decided to correct it. Low interest rates have allowed housing prices to skyrocket. But as the economy is finding a more stable footing, that sets the stage for slight increases in interest rates.
The Inflation Situation
OK, ok. There is rarely just a single answer as to why things happen. Low inflation is another reason why mortgages rates have been “too low”. Inflation rates tend to be lower during a recession. The year of 2008 definitely saw that. But inflation tends to move back up when times are better. That hasn’t happened – yet.
Taxes and More Taxes
In December 2017, President Trump signed new tax cuts into law, and some of these affect home owners and potential buyers. Some good, and some bad. Here are some of those changes.
First, the amount of property taxes, that you can deduct, both at the state and local levels, is capped at $10,000.
Next, one of the home owner’s most prized deductions – the mortgage interest deduction – only applies to the first $750,000 in mortgages. Before, it applied to the first $1 million.
But there are some tax breaks too. Someone in the 25% tax bracket has had their tax reduced to 22%. The person in the 15% bracket is now in the 12% bracket. That’s good!
There are some corporate tax cuts too, which can spur on the economy and create jobs. But that growth could also increase inflation, which is bad for mortgage seekers.
It seems that these changes present a bit of a mixed bag. Maybe this makes you rethink buying or refinancing a home.
Get to Know Mortgages with Shamrock Financial
Hold the phone! It’s not time to lament that the housing market has left you far behind. In fact, you may not necessarily have been priced out of the market to buy or refinance a home. Keep in mind that current interest rates are still low, and depending on your financial situation, home buying can be quite affordable.
If you are still hesitant about taking that home buying plunge, ponder this: there are numerous mortgage products out there that can make home buying affordable, despite the increases mentioned above. And you can find out more about those products with Shamrock Financial.
Whether you are considering a conventional loan, 100% financing, or just want to know more about what you can afford and how, Shamrock Financial can show you the way. We will tell you about FHA loans, mortgages for veterans, and programs for refinancing. Better yet, we can take a peek at your finances and suggest ways you can smooth out any monetary bumps.
Even if current interest rates are on the rise, don’t fret. Shamrock Financial can take you where you need to go.