With mortgage interest rates hovering around 7%, does it make sense to buy that dream house now? Or is it better to wait until interest rates fall?
That’s the question would-be home buyers are facing. The answer often lies in how long you plan to stay in your home and the market conditions of the community in which you're buying.
"If you can afford to buy the home of your dreams now at these higher interest rates, you can always refinance to a lower rate should rates decrease," said Carolyn Morganbesser, mortgage originations officer at Affinity Federal Credit Union. "It really depends on your situation. I can tell you that this is exactly what many people do after buying a home."
Interest rates are fluid. They are currently averaging 6.79% as of June 1, 2023, according to data from the Federal Bank of St. Louis. They averaged 2.93% in June of 2021. Before the pandemic, in June of 2018, they averaged 4.54%.
Interest rates have a huge impact on your monthly payment. A $400,000 loan at 7% represents $3,331 a month over 30 years, compared to $2,356 with a 4% interest rate loan over 30 years. Appreciation, closing costs and market conditions are also factors to consider in the timing of a home purchase.
For those considering refinancing down the road, there are closing costs associated with the process, Morganbesser said. The cost of the refinance is determined by the loan amount and the state you live in.
The closing costs would include any lender fees such as origination or application, processing, underwriting or document preparation fees.
Escrows and prepaid finances are due at closing. Prepaid finances include any real estate taxes, insurance and interest that is due prior to the first payment on the loan.
Escrows are what the lending institution will take to establish your account so that they can pay your taxes and insurance going forward.
Buying a home builds equity and guards against inflation, said Scott Oyler, a real estate agent at Coldwell Banker in Cincinnati, Ohio.
In Cincinnati, home prices were up 6% in April of 2023 compared to last year, according to Redfin.com, a real estate information website. The median price in Cincinnati was $265,000 with homes selling after an average of seven days on the market.
"Due to the housing shortage, I don’t think prices are coming down any time soon," Oyler said.
Using internal data from Compass Real Estate, agent Max Stokes reports home prices in Bergen County, New Jersey, a suburb of New York City, rose 6% within the past year. He does not anticipate the low inventory situation to change any time soon as homeowners who have locked into low interest rates are unwilling to sell.
If a homeowner is in for the long haul, refinancing when rates fall could be the answer, Oyler said.
Refinancing carries costs that vary depending on the region. The fees and costs could also change based on a borrower’s financial situation, Morganbesser said.
There are no guarantees in real estate and the market appreciation could slow, Stokes said.
"We do anticipate volatility in the housing market due to the uncertain economy and are encouraging our buyers to have a really strong handle on how long they plan to live in a home," Stokes said.
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