Following months of encouraging signs that inflation was finally cooling, a new report showed that it ticked back up in July. With the benchmark interest rate already at a 22-year high and mortgage interest rates the highest they've been since 2000, many buyers may elect to sit on the sidelines and wait for the rate environment to improve. That said, there's no clear insight into when that improvement will actually take place. Nor do experts know how much rates will even fall. With this forecast unclear, it may still make sense for buyers to act now.
3 reasons why it's worth locking in a mortgage rate now.
There are multiple compelling reasons buyers may want to lock in a mortgage rate now. Here are three things to consider.
Rates could go higher.
Sure, today's mortgage rates are high (7.54% for a 30-year conventional mortgage as of August 29, 2023). But they can, and likely will, go higher later in the year as the Federal Reserve continues to battle toward a 2% inflation goal. To get there, the benchmark interest rate will likely rise, and mortgage rates will follow with it. So today's high 7% rate could be tomorrow's low 7% rate when compared to the available 8% rate offered by most lenders.
Mortgage rates are speculative, so any move will be a slight gamble. But with most experts predicting additional rate hikes for this year and possibly into 2024, you couldn't go wrong by locking in a rate now — and hoping for an opportunity to get a lower one in the near future.
You may lose your dream home.
While no one prefers today's mortgage rates when compared to the recent past, it can still be smart to lock in a rate today if the alternative is losing out on your dream home. Your dream home is exactly that — what you dream of potentially securing. So, it won't come around every day. Waiting around for rates to adjust could result in your losing the home.
In cases like this it makes sense to lock in a rate, buy the home and look for a chance to secure a lower rate, either before closing or once you've moved in and settled. "Date the rate and marry the home," many experts advise. That's particularly applicable now, especially if you'll lose your dream home in the interim.
You could always refinance in the future.
No one knows when mortgage interest rates are going to come down (or by how much). But all experts agree that they will eventually fall again. While it's unlikely that they'll drop back into the 2% to 3% range from the peak pandemic timeframe, it's also unlikely that they will stay as elevated as they currently are.
With this in mind, it could be smart to lock in a rate now with an eye toward refinancing to a lower one in the future. This is particularly true for those who are buying their forever home. Mortgage refinancing may not be valuable for owners who are planning on moving in the short term, but for those who are planning on staying put, it'll likely be worth it. For these buyers, especially, it makes sense to lock in a rate now.
The bottom line
Elevated mortgage interest rates have understandably pushed a lot of buyers out of the market. That said, any prospective ones still considering a move should also strongly look into locking a mortgage rate now. By doing so, they could wind up getting a lower rate than they would have if they waited. But they could also position themselves to purchase their dream home (something they wouldn't have been able to do if they waited for the rate environment to readjust). And all other considerations being equal, buyers could always refinance to a lower rate in the future.
Posted by Cary W Porter on