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Thirty-year fixed interest rates were less than 3% in early 2021 but are inching closer and closer to 6% today in the summer of 2022. This sharp increase may seem like mortgage rates are too high and you missed the right opportunity to buy a home, but just because rates are on the rise doesn’t mean you shouldn’t go ahead and make the purchase. However, you will need to maintain perspective, have a plan, and know your budget.

Why Are Mortgage Rates Increasing?

One of the leading causes is inflation, and most experts agree that it probably won’t ease anytime soon. So, to address the situation, the Federal Reserve implemented a plan to begin raising benchmark short-term interest rates. And while these rates aren’t directly connected to mortgage rates, they are correlated.

The other issue that ties into this is that financial markets have been closely monitoring the situation in Russia and Ukraine since March. This conflict has helped to increase concerns about inflation and escalation. Hence, if you’re looking to buy a home, there’s no better time than now. In fact, if you continue to wait, the rates may only go higher. So, what can you do?

Direct Your Focus Where It Belongs

Rather than dwell on the fact that mortgage rates are increasing, direct your focus where it belongs. There are steps you can take to determine if buying a house with higher rates makes sense for you.

Is the timing right?

In what direction is your life headed? Are you looking to lay down roots and stay in one place for five to seven years? Or are you planning to move to a new city within a couple of years?

Typically, it takes five to seven years to build equity and recoup your purchase costs. So, if your life will remain stable and consistent for several years, it’s still a really good time to buy. However, if you will move within a year or two, it would probably be best to rent a house rather than buy one.

How are your finances?

Now, it’s time to conduct a financial analysis to determine if you are financially prepared for home buying. Can you afford the monthly mortgage, insurance, taxes, and other expenses to run the home? Do you have any emergency savings?

This is also an excellent time to check your credit score, as this will have a direct bearing on the monthly mortgage payments and the interest rate you pay. If you find mistakes, have them corrected before applying for loans.

If you are financially stable and can afford whatever is thrown your way, then it’s best to not worry about rising rates and go ahead and buy. However, if you cannot meet the monthly payments, it’s a great idea to continue renting and saving money for a bit longer.

What’s your budget?

Whether interest rates are high or low, it’s always important to know what you can comfortably afford. Setting appropriate search boundaries from the start will prevent you from falling in love with a home that will only result in a rejected offer. After all, no one likes rejection anyway. So, anytime you can avoid the situation – you should!

The Bottom Line

In the end, if you are on the fence about whether or not to buy a home, don’t let rising interest rates be the reason you don’t buy. It’s worth reminding you that mortgage rates were higher than they are now as recently as 2018. Therefore, it’s better to focus on affordability and the monthly payment rather than stress the interest rate.

Always remember that these rates will fluctuate over time. Just because they are a little higher now doesn’t mean they won’t come back down again in the future. The good news for you is that these higher rates will price some people out of the market, which leaves you with less competition and a higher chance that you’ll find the home of your dreams! 

So, go ahead and buy that dream home – you can always refinance for a better rate later!