Consumers who are preapproved and looking to buy a home are sometimes getting shell shock as relates to the mortgage payment. The rate, the purchase price, and the cash-to-close may change the cost to buy a home. Here are things you might want to do if you are buying a house…
We are presently in an inflationary environment brought on by economic factors beyond every consumer’s control. Interest rates move up based on various economic events and so far in 2022 inflation has reared its ugly head. It seems like every industry is experiencing price increases because of inflation which is running rampant throughout the United States. So, if you’re looking to get prequalified to buy a home and you want to know what the big picture is here is what to know. The Fed is increasing the fed funds rate to slow down inflation. When the Fed increases the fed funds rate, mortgage rates improve because borrowing costs on wall street cost more. This helps push mortgage rates lower.
Interest rates during 2009-2015 remained at 4%-5% for the average 30-year fixed. Covid came along and completely reshaped interest rates. People overspent on low-cost funds in the last two years and now naturally interest rates are higher. The amount of mortgage volume happening this year in 2022 in the last two years is less than half.
The financial markets are feeling the pain of inflation. This is why the federal reserve is taking measures to combat inflation. Either they will be successful in driving rates down in the next one to two years or credit will loosen making it easier to get a mortgage, or the fed will reverse course. They’ll shift into another monetary policy called quantitative easing which is the buying of mortgage backs securities. This would put the full faith and guarantee of the US government into the markets. This is another reason interest rates in the last two years were lower.
Interest rates will slowly start to come back down which will later afford you the ability to refinance your mortgage payment from the house that you bought in 2022.
If you got a 6% 30-year mortgage in 2022 that means you would want to get at least 5.3% or lower as a target interest rate for payment reduction in the future. This will also depend heavily on the amount financed. The bigger the loan amount greater the payment reduction based on a change in interest rate. That alone could save $150,000 depending on the amount financed.
The moral of the story is if you’re buying a home today and you’re getting a mortgage interest rate you might not particularly want, know that it’s temporary. There will be an opportunity to refinance estimated in the next 1-2 years to lower your interest rate by 0.75%-1% or more. This could result in not only a lower cost of funds. but also savings of hundreds of dollars per month which for many families can make difference on the bottom line.
If you’re looking to get prequalified for a mortgage and want a custom mortgage plan for you and your family start today with a no-cost loan quote!