Mortgage rates are expected to rise by inches, but there is enough economic uncertainty to see ups and downs along the way.
Inflation has been a major factor behind the high mortgage rates today. It reached 8.3% in April, a slight decrease from the previous month, but still close to a 40-year high. In response, the Federal Reserve is expected to continue to make policy decisions that will raise interest rates.
Although experts believe that rates are likely to continue their upward trend, geopolitical events and ongoing global supply problems may reverse the trajectory we are on. At some point higher tariffs, higher energy prices and higher prices for everything will start to stifle the economy, says Melissa Cone, regional vice president at William Raveis Mortgage. At this point, rates have gone down, but we have a mountain to climb before we see that happen, she says.
Instead of waiting for prices to drop before buying a home, if this is the right time for you to become a homeowner, focus on the basics and not just the rates. Make sure your finances are in order, create a budget for buying apartments and look for the best deal on a mortgage.
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Expert Forecasts: What Happens to Mortgage Rates?
Here are three housing experts who comment on mortgage interest rate trends and what you can do about it.
Selma Hep, Deputy Chief Economist at CoreLogic
We may see rates rise a little more to 5.5% or even 6% this coming summer. As the housing market begins to cool, we will see interest rates fall slightly. We will eventually have lower rates, perhaps in the fourth quarter, as lenders compete for business.
Tendei Kafidiza, Chief Economist at US Bank
Expect volatility with mortgage rates. Rates may rise and fall as they respond to key economic points such as inflation and economic growth. “This is a very volatile period.
Melissa Cone, Regional Vice President at William Raveis Mortgage
Rates will continue to be driven by economic data and are likely to change upwards. So far the economy has proven resilient to the hyper-inflationary environment and at this high rate, with recent retail sales and unemployment figures reaching high. "As a result, the Fed will have to fight much harder to control inflation and continue to raise interest rates."
What is affecting mortgage rates right now?
The latest consumer price index showed annual inflation of 8.3%, close to a 40-year high. To bring inflation to a more reasonable level, the Federal Reserve raised short-term interest rates. Mortgage interest rate markets expected further interest rate hikes from the Fed and rose based on this expectation.
With renewed threats to global supply chains from the war in Ukraine and China's COVID-19, inflation could remain higher than expected. If that happens, then the Federal Reserve will have to be even more aggressive in raising interest rates to reduce inflation.
Although rates have risen dramatically in recent months, they are not historically high. Today's rates actually fall in the normal historical range.
Expert advice for homebuyers with rising mortgage rates
Today's high mortgage rates will increase the cost of home ownership. That does not mean you have to wait for prices to drop before buying a property. It is better not to try to time the market when buying a home, says Cappidza. "It's just not too certain, there is too much volatility."
Instead of hoping to jump into the housing market when rates are low, buy when the time is right for you. No matter where the rates are, you can successfully become a landlord by focusing on these basics.
Stick to your budget
When creating a budget for the purchase of your apartments, experts recommend limiting your housing payment to 28% of your pre-tax income.
Because the affordable price of housing is eroding rapidly, it is just as important as ever to focus on your monthly payment. Interest rates grab the headlines, but "it really has to do with what the monthly payment is and how it affects your wallet each month," says Cone.
Even if your mortgage rate is higher than it was 6 months ago, if you are locked into a payment that you can afford comfortably then you are ready for long term success.
Consider ARM loan
As interest rates rise, the gap between fixed-rate and adjustable-rate (ARM) loans increases to 1% or more for some types of loans.
Depending on how long you keep your mortgage before selling or refinancing, an ARM loan may not be that risky. ARM loans have a lower fixed interest rate for a set period of time, usually 5-10 years. After this introductory period your mortgage rate usually resets annually to the market rate, although many mortgage lenders offer different terms.
With adjustable rate loans you can check refinancing for a fixed rate loan before the interest rate resets to market value. "Follow the interest rate and when the interest rate goes down, take the opportunity and settle for a fixed interest rate," says Conn. We are in this period where mortgage interest rates are inflated, but it is not life imprisonment, they have gone down at some point, she says.
One of the best ways to ensure you get the best deal on your home loans is to compare offers from several mortgage lenders. By doing so you will not only be able to negotiate the lowest interest rate, but also bring advance fees to your decision.