How high interest rates actually help buyers
It may be October and Spooky Season is upon us, but one thing buyers don’t have to fear is interest rates. Social media and news outlets running yet another cycle of "climbing rates" can feel like a scary movie that just won’t end. People dwell on the increased upfront costs and burdens. However, it’s worth taking a closer contextual look and understanding the positive things high interest rates can bring to buyers.
The Market Adjusts
The real estate market tends to adapt to changes in interest rates. When rates rise, housing prices may adjust accordingly and drop. Sellers might be more willing to negotiate, and buyers could find opportunities for more affordable home prices. By being patient and keeping an eye on the market, a buyer can still find a great home that fits their budget.
Less Competition
Many buyers are sitting on the sideline crying doom and gloom. One can capitalize on this lack of competition and may find an offer being accepted easier. Good properties are stagnating on the market and a buyer could snag a deal on something better than they thought they could afford. When interest rates go back down, more buyers will feel comfortable, and the amount of competition increases.
Diversified Loan Options
It’s not one-size-fits-all. Lenders offer a variety of loan products to meet the needs of different buyers. If high interest rates are a concern, explore different types of loans such as fixed-rate versus adjustable-rate mortgages. Fixed-rate mortgages offer stability, while adjustable-rate mortgages may have lower initial rates that can make homeownership more accessible from the beginning.
There are also opportunities for rate buydowns on your mortgage: permanent and temporary. Permanent buydowns may give buyers the ability to buy more house for a lower rate. Temporary buydowns can provide lower monthly payments while buyers wait to refinance. (https://rittermortgage.com/marry-the-home-date-the-rate-a-strategic-apprroach-to-home-buying-in-2023/) To learn more about your loan options, speak with a mortgage professional.
Predictability and Control
If you secure a fixed-rate mortgage, you gain predictability and control over your housing expenses. Interest rates continuing to increase won't affect your monthly payments for the life of the loan, giving you peace of mind and financial stability. You also won’t have to worry about rent hikes from a landlord.
Tax Benefits
Remember that some, or all, of a buyer’s mortgage interest is tax-deductible. Even if you're paying a higher interest rate, you can potentially offset some of those costs through tax savings. Be sure to consult with a tax professional, CPA, or attorney to understand how this can work in your favor.
Invest in Your Future
Over time, property can appreciate, providing potential financial gains. While interest rates play a role in your monthly mortgage payment, it's important to consider the long-term benefits of owning a home and building equity. In the future, you may qualify to refinance your loan for a lower rate or more favorable terms. Because of this, many people say, “date the rate, marry the house!”
Rates are Historically Low
Here’s some historical context. In past decades, interest rates were commonly in the double digits! Current rates may be higher than they have been in the last two or three years, but they are still historically low. For example, in the 1980’s, interest rates on a 30-year fixed-rate mortgage fluctuated between 9.03% and 18.44%. The interest rates on that same mortgage loan in the last decade have been between 2.66% and 7.49% as of October 5, 2023. (https://www.freddiemac.com/pmms)
TL;DR
While high interest rates may initially seem daunting, they shouldn't spook you from pursuing homeownership. The real estate market is adaptable and there are various financing options available to suit your needs. Remember that homeownership is a long-term investment in your future, and the benefits of owning a home often outweigh short-term fluctuations in interest rates.
