If you’re thinking about buying a home, you may have heard that interest rates are rising. Rising interest rates have powerful effects on the mortgage industry and individual homebuyers.
While many of these effects are seen as negative (such as buyers having higher mortgage payments), there are also positive aspects of rising rates.
Here are five positive things about rising interest rates:
They’re a signal of economic improvement
The Federal Reserve raises short-term interest rates when inflation becomes a concern in an improving economy. In a strong economy, there is more consumer spending and jobs, higher wages, and increased competition for employees.
Investments pay better
In the last several months, mortgage rates have gone up, and interest rates are expected to rise in 2017. At the same time, the stock market has created $2.2 million in wealth and created excellent returns for investors. If your future home’s down payment funds have been invested in the stock market or mutual funds, you may have the opportunity for a larger down payment.
You may have less competition for homes
Because rising interest rates can push homebuyers out of the market, you may have less buyer competition for your future dream home (or first home). In many housing markets, competition for homes has been fierce, and bidding wars for desirable homes is common. If you’re ready to buy a home (particularly in a hot housing market), a period of higher interest rates could provide you new and unexpected opportunities.
It can be easier to get a loan
If you’re a mortgage applicant with good credit, long-term employment history and substantial savings, you have the opportunity to make lenders compete for your business. Alternatively, if you were turned down for a loan but have since improved your finances, it could be a good opportunity to re-contact the lender.
Government loans become a bargain
When rates are rising, government loans backed by the FHA, USDA and VA are still assumable under their original terms. This means that as a buyer, you can “take over” a seller’s existing mortgage if you’re able to qualify for financing. This could allow you to finance a house with an interest rate lower than current market levels.
There are still opportunities in the current market
While many potential homebuyers are discouraged by rising interest rates, there are still exciting opportunities to be found. You may need to adjust your thinking and expectations for the best chance of success.
If you have questions about homebuying opportunities in the current market, contact me today.