Over the past year and a half, interest rates have been historically low, which is the result of many distinct factors. Now that the economy is improving, interest rates are starting to rise. If you have been thinking about buying a home or refinancing but are worried about the effects of rising interest rates, the following takes a look at what concerns, if any, you should have.
Why Are Interest Rates Rising?
The interest rates for 30-year mortgages have recently increased to just above 4.00 percent for the first time since 2019. If you find out that interest rates are rising but don't know why, you might feel concerned that now isn't a good time to buy a home. However, the truth is that rising interest rates were inevitable and don't necessarily make it a bad time to invest in a home.
There are several reasons why interest rates have been increasing as of late. For one, inflation is currently taking place, which means that the buying power of currency is decreasing. The reason that rates are rising and inflation is occurring is because the economy is improving. In the 12 months following the start of the COVID-19 pandemic, the economy struggled as workplaces closed down temporarily or permanently.
When the economy was at its worst, the Federal Reserve chose to significantly lower national interest rates, which immediately bolstered the real estate market and made it more likely for buyers to make an offer on a home. Now that the COVID-19 pandemic has started to reduce in severity, businesses are opening up and reducing restrictions, which helps strengthen the economy.
There's no longer a need for interest rates to be low while the economy is relatively strong. Many banks and financial institutions have also increased interest rates in anticipation that the Federal Reserve will soon do the same.
Should You Be Concerned About Rising Interest Rates?
The answer is that you shouldn't be too concerned about rising interest rates. Because the economy is stronger, it's perfectly normal for interest rates to climb. Even though rates aren't as low as they were last year, they are still under what they were in 2017 and 2018, which means that now may be a great time to buy.
If you're interested in buying a home, there isn't much difference between interest rates of 3.5% and 4.0%. However, higher interest rates indicate that your monthly mortgage payment will also be higher, which you should take into account.
While interest rates are expected to rise in the near future, they are still historically low, which means that now is a good time to refinance and/or purchase a home. If you've been looking into refinancing your current mortgage or buying an entirely new home, call Power Play Mortgage today to get started!
Craig Daniger - Loan Officer