Mortgage Rates Are Rising. What Do I Do?
Shop carefully for the best offers and home prices—and think about buying residential real estate now.
Inflation has changed the game for prospective home buyers in need of a mortgage. After two years of low interest rates—a move by the Federal Reserve, which reduced rates when the pandemic hit to help stimulate affordability and spending—the financial picture has shifted in recent months.
As we begin 2023, consumers continue to feel the pinch as inflation drives up the cost of goods in general. The good news is that rate hikes tend to help mute the effects of inflation: When inflation spikes, the Fed often raises rates to slow spending and borrowing, trying to keep consumer prices from rising too fast. Experts (including Realtors and mortgage lenders) advise making those big purchases now, before the full effects of higher rates kick in.
As of December 2022, the Federal Home Loan Mortgage Corporation—the government–
sponsored enterprise commonly known as Freddie Mac—reported average 30-year fixed rate mortgages were at 6.42%, while 15-year mortgages were at 5.68%. Of course, the specific interest rate assigned to a prospective buyer depends on a list of variables, including purchasing percentage points, down payment amount, financial history, credit score and even the loan amount. But as interest rates and the cost-of-living rise, finding an affordable home becomes a serious challenge for potential buyers.
Homeownership and Refinancing
As home prices slowly decline, many examining the housing market are wondering if there are other options. Instead of a new home purchase, should they refinance the one they have? Is this a good time? Experts say yes if your current mortgage rate is higher than the average interest rate. In other words, if your monthly mortgage payment is below what you could get with refinancing for the same term, then it doesn’t make sense to change.
Here’s a look at interest rates over the last 50 years.