There's a reason so many people clamored to buy homes in 2020 and rushed to refinance their mortgages. For much of last year, mortgage rates sat at or near historic lows, with the 30-year mortgage being available at under 3%.
But rates have risen a bit this fall. For much of October, the average rate for a 30-year mortgage hovered around 3.3%.
If you're looking to buy a home in the near term, you may be wondering if higher rates should prompt you to rethink your plans. But in reality, there are other, more pressing reasons why it pays to wait.
Don't let slightly higher rates influence your home buying decision
While mortgage rates may be higher today than they were a year ago, or even earlier this year, it's important to understand that on a historical basis, they're still really low. If you're interested in buying a home, slightly higher mortgage rates shouldn't be what stops you.
Even if mortgage rates rise to 3.5% for a 30-year loan before the end of the year, that would mean paying principal and interest of $449 for every $100,000 you borrow. If you're able to take out a shorter-term loan, you might snag a much more competitive interest rate.
That said, buying a home today may not be as affordable as you'd think, despite mortgage rates sitting at attractive levels. That's because housing inventory is still really low, so there's a lot of competition for homes. As a result, home prices are sky-high.
Last month, the S&P CoreLogic Case-Shiller Index released its July data and found that home prices rose 19.7% from the previous year. That's a big jump, and a better reason than a modest uptick in mortgage rates to put off buying a home.
Will mortgage rates stay low into 2022?
The Mortgage Bankers Association predicts the average 30-year mortgage rate will rise to 4% by the end of 2022. But again, 4% is not a high rate on a historical basis. While the idea of rising rates may not sound great, there's also a chance home prices will come down in the coming year to help even things out.
Furthermore, that projection refers to the end of 2022, which means rates might gradually rise from month to month. If you buy a home in, say, May of 2022, rates may still be closer to 3% than 4% at that point of the year.
If you want to increase your chances of qualifying for an affordable mortgage rate, it pays to work on boosting your credit score if it's not already in the mid- to upper-700s. You can do so by paying off credit card debt and correcting errors that may be lurking in your credit report.
Paying off credit card debt will also lower your debt-to-income ratio, which is another important factor lenders look at when approving home loan candidates. That's another way for you to approach the home buying process with more confidence.
A historic opportunity to potentially save thousands on your mortgage
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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