How Should Interest Rates Influence When You Buy?

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Interest rates rise in correlation to inflation and other economic activity. When that happens, it can increase housing costs. But the question is, should it prompt you to buy sooner than you’re ready?

The Right Time Is Now

In real estate, the right time is always now for someone. Is it the right time for you? There’s more to determine than interest rates. 

Here’s how to break it down:

• Rising interest rates: as interest rises, even a quarter of a point increase can add more than $10,000 to a two hundred-thousand-dollar mortgage. If you can lock in the lower rate, you’ll save nearly thirty dollars each month over the life of the loan.
• Rising housing prices: In addition to the increase in interest rates, as housing prices trend upward, the combination can push you out of contention for certain homes. If you’re on the fence about buying but know where you want to live and what you want to pay, what you know now is more useful than speculating on what might be later.
• Changes in the tax laws: Recent changes mean that writing off interest is limited, but your standard deduction probably offsets it. Work with your tax advisor to see if a mortgage improves your tax situation, remains neutral, or increases your outgo.
• Down payment savings: As prices go up, the amount you need for a down payment goes up too. If you currently have the cash you need to lock in the home you want, you might not want to wait.
• Know your expenses: Buying a house locks you in for the life of the loan or until you sell it. So, if you’re in need of a new car, or have another large expense coming down the pike, calculate it into your monthly budget what you’ll need to handle those expenses as well as your mortgage payment. Avoid stretching yourself so thin that your house payment becomes a burden.
• Review your employment stability. Is there a chance you’ll move away? Change jobs? Retire? Many of the benefits of homeownership come after the first five or six years when you’ve mostly recovered the closing costs with the rising equity. If your intention is to move sooner than that, consider buying now with the intention to turn the property into a rental, or wait until you’re more settled in your location.

The bottom line is that it’s your bottom line that matters. Just because interest rates rise doesn’t mean you should jump into ownership before you’re ready. But don’t let it stop you either. Discuss your plans with your real estate professional. They have a finger on the pulse of the market to help you time when a purchase is right for you.