What to Do When Rates Start to Rise

What to Do When Rates Start to Rise

For a good stretch of the last year, it seemed there may be no bottom to the mortgage market as rates broke record lows month after month.

That trend may have now reached its end, with rates above 3% for the first time since last summer. And the increases are already outpacing some predictions for 2021.

Those low rates are part of the fuel behind a boom in the housing market in 2020, along with a decrease in the number of properties for sale and other factors. So, if numbers are now on the rebound, what could that mean for you if you didn’t buy a house in the last year and what should you do now?

The answer in most cases is to continue to do what makes the most sense at any other time, but read on to find out what that means.

What to Do With an ARM    

If you’re considering getting an adjustable-rate mortgage (ARM), there’s a good chance one of the benefits you’re attracted to is the possibility to score an even lower rate for the initial period than you can get on a traditional loan. Getting an ARM right now gives you the opportunity to lock in today’s low rates as a hedge against the possibility of continued increases. If you decide to go that route, you may want to consider one with a longer initial fixed period to take advantage of near-historically low rates.

Once you have your mortgage, it’s a great idea to pay more than the minimum each month if possible. This is a good idea with any loan because it means you can cut your interest obligation over the life of the debt.

That’s especially true with an ARM because it may be adjusted to a rate much higher than what you get for the fixed period. So, it’s easier to pay more than the minimum when the interest is low and doing so cuts the principal you’d be charged the higher rate on when adjustment time comes, which means lower payments then.

The same advice stands if you already have an ARM that adjusted to a lower rate in the last year. If you continue to pay the same amount each month or even increase that number, you’ll be able to take advantage of the lower rate and help yourself in the long run.

Go Traditional When It’s Low

As we said, one of the attractive features of the ARM is the opportunity get a rate lower than what you’d get with a traditional loan, but the risk is the rate may rise significantly during the course of the loan. With a fixed rate loan, you don’t carry that threat; your rate is locked for the entire length of the mortgage.

While ARM initial rates remained below fixed loan interest rates as the numbers tumbled, they haven’t been significantly lower lately. So, locking in a really great rate for 15 or 30 years may well be the better option, particularly if you plan to stay in the home for a long time.

No one can predict the future, so it’s impossible for you, us or anyone else to say whether this is the right time to lock in a rate to avoid increases. While the experts expect the rate to go up this year, they could be wrong and it could sink even further.

The best practice is to let low rates be a motivator for the timing of a purchase, but not get locked into a holding pattern waiting to see what the market will do next. And, with rates so low, there’s a good chance you’re going to save significantly over the loan you could get if you wait too long to make your move.

If you’re ready to take the plunge into home ownership, let the experts at Journey Home Lending help you find the financing that’s right for you. Call us today to get started!

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