You’ve likely seen that mortgage rates have climbed from the super low rates we saw for a year and a half during the pandemic. It might seem scary, but it’s not reason to panic yet. Understanding why rates are going up and how it affects the housing market can help you feel better about the situation and know what to do.
Here are the top reasons mortgage rates are rising.
The Pandemic Economy is Behind Us
The days of major job loss and low sales are behind us. The economy is quickly bouncing back. Unemployment rates are lower, and employers are adding more jobs back every day. In February alone 678,000 jobs were added to the market and unemployment dropped below 4% for the first time in a long time.
Inflation is High
Inflation is the highest we’ve seen in decades. While this might not seem tied to mortgages, it has a direct correlation. When inflation rises, the value of the dollar falls, which means investors aren’t interested in mortgage-backed securities. They know if they buy an MBS now at a low rate, yet rates continue to rise, they lose.
Mortgage rates have to increase to entice more investors, which means consumers pay the price with higher rates.
High-Interest Rate May Affect the Housing Market
Up until now, we’ve seen housing prices climbing at crazy speeds and demand exceeding supply. With interest rates climbing, we’ll slowly see a decline in the demand, and prices may soon fall too, but not so much that we’d see another housing crisis, just back to normal pre-pandemic levels.
With higher interest rates, it’s harder for borrowers to stretch their borrowing power. First-time homebuyers were able to sneak into the market this last year and a half with rock bottom rates, keeping their debt-to-income ratios down and making it easier to afford a home.
How to Deal with Rising Interest Rates
Rising interest rates don’t mean you can’t get a mortgage. There are ways to keep your rate as low as possible, making it affordable to buy your dream home or refinance.
Maximize your credit score: The lower the risk you pose, the better the rate you can get. Try fixing your credit score as much as possible before applying for a loan.
Make a large down payment: If you have the money, make a large down payment. Putting more ‘skin in the game’ decreases your risk of default and makes it easier for you to secure a lower interest rate.
Rising interest rates aren’t the end of the world. Right now, we’re talking 4% or slightly higher, which won’t make that much of a difference in your payment. The key is to work with a broker that works with the best lenders in the industry, securing you the lowest interest rates.
If you’re in the market for a mortgage or wonder how the higher rates will affect you, contact us today and let us show you the way!