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Calling all aspiring homeowners: Mortgage rates are expected to go up.
Rates were flat last week, but the experts say don’t expect that trend to continue.
The economy may not be moving along at its pre-pandemic levels, but it’s trending in the right direction. And a growing economy will push interest rates higher. As people return to work, the government looks to spend more money, and Treasury bond yields increase, rates should continue to rise.
But the opportunity for borrowers to take advantage of excellent mortgage and refinance rates hasn’t evaporated. “Mortgage rates are up quite a bit from their lows, but if you take a step back they are still low by historical standards,” says Oxford Economics lead economist, Nancy Vanden Houten. Looking back over just the last two or three years, today rates are 0.5% to 1.5% lower, which is a significant discount.
What Will Mortgage Rates Do This Week?
While mortgage rates have fluctuated, all signs point to them going up. “Weekly changes in mortgage rates are typically a function of what happens in the U.S. Treasury [bond] markets,” Vanden Houten says. “Looking at the Treasury market … I would say rates are apt to be higher in next week’s surveys.”
Although, Vanden Houten was quick to point out that we’re likely to see volatility, with rates bouncing around a bit, but only making moderate changes. Overall, she believes mortgage rates are likely to only make smaller gains, by 0.10% to 0.15%, over the rest of the year, barring any major surprises.
Is It Still a Good Time to Buy a Home or Refinance?
The cost of a mortgage may be slowly increasing, but it may not be the biggest issue for homebuyers. “I can see rates going up … but I don’t think it’s going to be as impactful as we may think it is for a home purchase,” says Primary Residential Mortgage division manager, Danny P. Felton. Historically low housing inventory and skyrocketing prices will have a much bigger effect on home affordability.
Higher rates will have a bigger impact on anyone considering a mortgage refinance. “As rates go up, the benefit of [a refinance] may not be as attractive,” Felton says. So if your current mortgage rate isn’t high enough to justify the upfront cost of refinancing to a lower rate, it may not make sense. However, Felton points out that you could save in other ways, such as by taking out a shorter-term loan, or consolidating higher-interest debt with a refinance.
How Small Mortgage Rate Changes Affect Your Budget
Mortgage rates vary not only from one lender to the next, but also from day-to-day. These changes can seem small, but over time, small rate increases add up.
When you’re shopping for a home or a refinance loan, higher rates can limit your home buying budget and cut into your potential refinance savings. If interest rates increased each week for a month by only 5 basis points, or 0.05%, here’s what it would cost you for a $300,000, 30-year loan.
|Loan Term||Loan Amount||Mortgage Rate||Payment||Total Interest|
Over the course of four weeks, these incremental increases would add $33 a month to your mortgage payment and close to $12,000 in additional interest.
So as rates rise, the exact same house will become more expensive, even if the purchase price doesn’t increase. “When interest rates go up buyers have to look at the affordability side of it,” Felton says. “Do I buy what I qualify for, or do I buy what I can afford, because there’s a difference.”
The Best Thing to Do to Get the Lowest Mortgage Rate Today
You can’t control the broader economic factors that push mortgage rates one way or another. However, you can take steps to ensure you’re getting the lowest rate available to you when you need to take out a mortgage.
The best thing to do is to get a quote from multiple mortgage lenders.
Raising your credit score or paying down your debt can make a difference. But those are better long term strategies because they take time. You can’t effectively raise your credit score this week, but you can find the lender that will give you the best offer.
One study estimates that the difference in mortgage rates between the most and least expensive lenders could be as high as 0.75%. And that’s before you consider differences in lender fees and closing costs. Finding the best deal you qualify for could save you thousands of dollars over the life of your mortgage.