Waiting for rates to drop on a new mortgage?

It’s no secret interest rates are the main driver of the nation’s loan volume. Fixed rate mortgages are currently sub 4%. Here is why waiting for a better rate could be risky could move…

The markets will continue to move

The pricing associated with interest rates moves daily, in some cases multiple times per day. It is normal for a lender to be pricing out with a certain interest-rate at 10am and then have a change that same day at 2pm resulting in a different fee and cost structure just hours apart. The market is always moving despite whether you pull the trigger on a new mortgage or not. The takeaway here is do not get fixated on a certain particular interest rate in order to justify the entire transaction. Focus on the big picture.

Let’s say you’re eyeing a 3.625% 30 year fixed rate mortgage and for whatever reason it takes you a couple of weeks to put together your financials to lock in an interest rate. The market moved and you end up with a 3.875% rate on a 30 year term instead. This is still considered a win.

Mortgage tip: for every .125 of a percent on every $100,000 borrowed that changes the payment $7.25 per month. For example on a $417k the difference between 3.625% versus 3.875% is $58 in payment difference.

The cost of procrastination

The cost of procrastination can add up quickly.

When refinancing: let’s say you stand to save $200 per month by pulling the trigger now using our example at 3.625%.  Each month you don’t refinance you are literally stepping over dollars to pick up times. Six months of procrastination is equivalent to a cost $600 just by waiting and that’s if rates move in the direction you want.

When buying: Using our $417,000 example using a rate range between 3.625-3.875% the difference in rate over the term of the loan is $21,294 in interest. Moreover, buying a home present a whole different challenge, the cost can add up as a difference in purchase price can sway buying power a result in property tax payments.

Practical approach

What are rates going to do in the future? No lender has a crystal ball. If you are debating whether to buy home or to refinance a home first thing to ask “Can I afford this new payment”? The second question to ask “Is this new loan truly helping me accomplish my larger financial goals? ” Interest rate is important to both questions undoubtedly, but big picture should be the target.

The best time to take out a mortgage is whatever time that means for you when you are in a place that you can justify the expense for the net tangible benefit. It is always the right time as long as you can afford the mortgage and you’re not throwing good money after bad. Let interest rates be a guiding factor only. A final thought: your lender cannot control the time frame for how long you take in putting together your supporting documentation together or what your house appraises for. At the end of the day, “Ask yourself “Is the rate and cost structure I end up with still allowing me to accomplish my goals?” Let that be your guide to obtaining a great home mortgage.

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