Mortgage rates have been rising sharply, and oftentimes with escalating rates come the rise in anxiety for potential homebuyers. Whether you are currently a homeowner or are considering buying a home, it is essential that you avoid the mistakes people tend to make when rates begin to abruptly rise.
The first and most important thing to remember so that you don’t make an impulsive long-term decision, is to not react emotionally to rate changes. Homebuyers tend to fall prey to conflicting emotional currents that affect home purchasing decisions. The two extremes of this can be true for home seekers.
On one hand, buyers look at the higher rates and conclude that the rising rates must indicate that buying a home is now out of reach financially. On the other hand, some experts say that rising rates could lead to more home buying activity, as buyers rush to lock in rates before they continue to increase further. The latest data from Mortgage Bankers Association indicates that applications for refinancing fell 15 percent, while new home purchase applications actually rose 3 percent and hit a three-year high. But impatience and impulsive decision making eliminates the key negotiating advantage that buyers have in choosing a home and getting the best buy.
What To Do Instead
When making a major purchase, never let emotions overwhelm rational judgment. Here are a few things to remember to avoid that pitfall:
If you are in the market for a new home, contact lenders and find out which one will give you the best financing package. Once you have selected one, go through the mortgage pre-approval process and find out how much you can afford to spend and ask your lender how much that pre-approval could change with rising rates. By doing this, you can push your targeted home purchase price down and shop without fear that pushing your budget to the limit could make a purchase collapse from lack of financing.
Keep in mind that even after the recent jump in rates, the difference in monthly payment might not be as much as you think. Mortgage rates are still very low by historical standards. Years from now when interest rates move closer to normal levels, the half a percent jump in your mortgage rate won’t be earth shattering, but you will be certain that you secured a good deal.