Low Mortgage Rate Era is Over. What To Do Now (blog)

The era of low mortgage rates is over. Is there anything that you can do to protect yourself?

Well, before you act please make sure you understand what you are trying to accomplish.

Remember, just because rates are going up doesn’t mean you MUST lock in your mortgage if you are in an adjustable.

Let’s say you have a 2% adjustable rate mortgage and it’s a 5/1 ARM. That means after five years the rate can increase by 1% a year until it caps out at your maximum. So the most your rate could increase in year six is to 3%.

3% is still significantly lower than the 4.61% 30 yr fixed that are out there now. Why would you give up that rate to lock in a higher rate?

Even say in the following year your rate increases to 4%. That is still significantly below where rates are today.

So, after 7 years you’ve paid well below market rates on your mortgage. Guess what. The first 8-10 years is when you really pay your interest too.

Look at your amortization table. Notice the interest is a HUGE part of the overall payment.

After 8 years , you’d need to really think if it makes any sense to refinance now that the bulk of your interest has already been paid.

How about if you were thinking about buying a home. Should you rush in now to lock something in before the rates go highter?

NO! Don’t do that! You see as rates increase, prices could decrease simply due to the fact higher rates makes certainly house price points less affordable. What does that do? Decreases demand.

Lower demand = lower prices. Economics 101. High demand, higher prices. Low demand, lower prices.

So, before you rush into to “lock in” your rate, and really “lock yourself in” to that house, maybe hang tight and see where rates, and prices go.

You may find yourself a better deal by sitting tight.

Obviously, everyone’s situation is unique. Think this through, seek qualified counsel. But whatever you do, do not make a rash decision when it comes to real estate.

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