What’s really going on with mortgage rates? | Take Me Home | Fold | The Weekly Source
A topic that concerns most people today: mortgage rates. It’s understandable. Since the fall of 2021, we have seen mortgage rates increase significantly. The trend affects owners, future owners and the major financial and real estate markets.
So why this seemingly sudden rise in rates? While there are many factors that affect rates, the number one thing that drives mortgage rates is the expectation of inflation. The impacts of inflation, coupled with the artificially low rates we have experienced since 2020, have created an upward trend. But are the rates as bad as the headlines lead us to believe? No.
Even at our current rate, historically we still enjoy a period of relatively low interest on home loans. Freddie Mac has provided a weekly rates survey since 1971 using the same methodology. The 30-year average rates from 1971 to the end of 2021 were 7.8%, according to Freddie Mac. Since I started in the mortgage business in 1993, I have rarely seen rates above this 50-year average. Today’s rates follow this trend, even with the hikes and inflation expectations. They are still below the 50-year average.
The coming weeks and months will have a lot to tell us about how credit markets will react to current market conditions. If significant inflation is expected, rates will likely rise. If the expectation turns into a recession and limited inflation, then we should see rates fall.
No matter what the loan market does in the future, as a consumer it is important that you understand the context of what is happening and how it impacts your financial home ownership decisions. Partnering with an expert mortgage broker who can offer creative solutions to your specific needs can mean the difference between a smooth transaction and a disappointment or worse: a financial mistake.
For example, did you know that in some scenarios you can negotiate with a seller to buy out the interest rate? Simply put, a buyout allows the borrower to get a lower rate by paying an additional commission which may be paid by the seller. This will help mitigate the impact of higher monthly payments at the current rate.
Another idea for buyers, if you are convinced that rates will go down in the next few years, you could consider an adjustable rate mortgage. This type of loan allows you to refinance later when rates are more in line with your goals.
My job as a mortgage broker is to know at all times which lenders have philosophies that match my borrowers’ circumstances. Many borrowers think they have an easy case for finding out that not all lenders will work with them. Working with a broker rather than a banker gives borrowers the ability to have a professional guide and rate shopper in a very complex world.
At the end of the line ? The ability to “shop around” for a lender that suits your needs comes in handy during busy times and can save you a lot of money in the long run.
