Am I Too Late to Get a Good Mortgage Deal?
For many years, mortgage rates seemed to do nothing but slide slowly but steadily downward. Beginning in May 2013, we began seeing spikes in rates. As it stands now, mortgage interest rates are a full percentage point above the same time last year. As we begin 2014, it’s become clear that rates aren’t just spiking upward, either, as this upward trend is expected to continue.
Does this mean you’re too late to get a good deal on a mortgage? Not at all! While rates are going up, they’re still relatively low and near historic lows. Here’s why you shouldn’t give up on buying a home just yet.
Mortgage Rates are Still Low
Consumers buying a home or refinancing were spoiled with rates under 4% for benchmark 30-year fixed-rate mortgages. By the end of 2012, rates hit a record low at 3.50%. By July of 2013, they were a full percentage point higher.
It’s easy to focus on the rising trend, but to do that means you’ll miss a key point: today’s rates are still a good deal! In 2008, typical rates were around 6.32%, while people buying a home in the 1980′s could expect to pay more than 10%.
When you put things into perspective, a rate of 4.5% isn’t that bad. The increased rate doesn’t even raise your mortgage payment as much as you may thing. At 4.5% on a 30-year fixed-rate home loan, you’ll pay $507 per month for every $100,000 borrowed. This is less than $60 more than you would have paid if you got the mortgage at the bottom of the market.
Why You Should be Looking at Home Prices, Not Rates
We’ll probably never see rates at 3.5% again, at least not in the near future. Interest rates should not be the only important factor on your mind, either. Home prices make just as big a dent in home affordability.
Home prices are still at historic lows in many areas of the country, and you don’t want to make the mistake of passing by a great opportunity because you’re worried about the interest rate.
If you have to choose between a low-priced home and a higher mortgage, and a high-priced home with a low mortgage, the first option will usually win out. That’s because you can always refinance the house later if interest rates drop, or you can sell the house and pay off the loan.
Overpaying on a home leaves you far fewer options.
Work to Get the Best Rate
While it’s not too late to get a good mortgage deal, you may have to work to ensure you’re eligible for the lowest rates. The best way to get a low rate is cleaning up your credit.
Order free copies of your credit report at AnnualCreditReport.com, and then look for any red flags lenders will notice. Ideally, your credit history will show a strong track record of on-time payments and responsible credit use.
If you see issues — such as a high debt-to-income ratio, late payments or you only have one type of credit account — take steps to fix the problems at least a couple of months before you apply for a home loan. This includes paying down your debt and even asking your creditors for a goodwill adjustment to have late payments removed from your file.
If you can afford it, and you really want the best deal, think about getting a 15- or 20-year mortgage for a better rate. If you don’t plan to stay in the home for more than 5-7 years, an adjustable rate mortgage (ARM) may be an option as well, but rates can (and probably will) rise after the initial period ends.
The bottom line is it’s not too late! Good mortgage deals are still available, but now’s the time to lock in if you’re in a good financial situation and you want to buy a home. Rates will only increase as we move farther into 2014.