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Homeownership could still be in the cards for you.
Key points
- Mortgage rates have risen sharply since the start of the year.
- While today’s rates might seem high, they’re far from unheard of.
If you’ve been looking to buy a home, you may now be more than frustrated with the barriers you’re facing. Not only are home prices up on a national level due to a lack of inventory, but borrowing rates are higher than they’ve been in years.
As of this writing, the average 30-year mortgage rate is sitting at around 5.75%. But we’ve already seen the 30-year loan average 6% this year, and as the Federal Reserve moves forward with interest rate hikes, borrowing could get increasingly expensive.
Now you may be thinking of calling things quits on the home buying front due to the combination of sky-high home prices and rising mortgage rates. But financial guru Suze Orman says that today’s borrowing rates shouldn’t stop you from becoming a homeowner. Here’s why.
It’s all about context
At this time last year, it was possible to sign a 30-year mortgage at around the 3% interest mark. So when we compare today’s borrowing rates to last year’s, it’s easy to regard current rates as downright unreasonable.
But it’s also important to put today’s rates into context. Sure, they’re much higher than they were last year, and they’re higher than they’ve been in roughly a decade. But they’re also much lower than they’ve been in the past.
Years ago, it wasn’t at all unusual to take out a 30-year mortgage at 7% or 8% interest. So while today’s rates may seem unreasonably high, Orman says it’s important to remember that that’s not so. Rather, it’s that buyers are used to the lower rates that have been available over the past number of years, and so by comparison, today’s rates seem outrageous.
There’s flexibility on the mortgage front
Another reason Orman says you shouldn’t give up on your home buying plans? There’s always the option to refinance a mortgage if rates drop in the future.
Remember, most people who buy a home take out a 30-year loan. And a lot can change over 30 years. If you sign a mortgage at 5.75% today, you might have a chance to refinance to a 4% loan in three or four years, thereby lowering your payments.
Think about what you can afford
All told, Orman insists that if you can afford a home today based on current prices and borrowing rates, go ahead and buy if that’s your goal. You can always attempt to refinance your mortgage down the line, but the sooner you purchase a home, the sooner you can begin to build equity and stop spending money on rent that you’ll never get back.
Of course, when we talk about affording a home, it’s important to recognize that your housing costs, including your mortgage payment, property taxes, and homeowners insurance premiums, should not exceed 30% of your take-home pay. But if you’re in a position to stick to that guideline and still end up with a home you’re happy to live in, then Orman says you might as well go for it.
The Ascent’s Best Mortgage Lender of 2022
Mortgage rates are on the rise — and fast. But they’re still relatively low by historical standards. So, if you want to take advantage of rates before they climb too high, you’ll want to find a lender who can help you secure the best rate possible.
That is where Better Mortgage comes in.
You can get pre-approved in as little as 3 minutes, with no hard credit check, and lock your rate at any time. Another plus? They don’t charge origination or lender fees (which can be as high as 2% of the loan amount for some lenders).
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