It should come as no surprise that interest rates are on the rise. This means that a house payment you could afford six months ago might be out of your range now. It’s still a great time to buy a home, though, because rates are still at record lows. I’ve had some conversations lately that made me remember that the interest rate when I bought my first home was around 17%. I know.
My professional advice is to visit your preferred lender IN PERSON, and have a conversation about the different kinds of loans out there, and get several estimates, based on increasing rates. Understand that there are MANY different types of loans, including, yes, adjustable rate ones. My first mortgage was an adjustable rate loan, but my rate was frozen for four years, and could only adjust upward one percent per adjustment period afterward. Good. At that time rates were SURE to go down anyway, but before the adjustment, I refinanced to a conventional loan with a fixed rate. And just so you know, there were a plethora of adjustable rate choices at that time. I’ve used a balloon loan too. Low fixed rate up front for a period, after which the entire amount comes due. But you just FINANCE that amount, and the risk, of course, is what the rates will be at that time. In my cases, they always went down, which was a calculate risk on my part.
If you’re not comfortable with risk, then these adjustable rates or balloon loans are not for you. But the point is that there are other ways to calculate your payment than just a straight, 30 year, conventional loan. So take a couple of hours and visit a loan officer. You’ll be amazed at what’s out there.
Adjustable rate mortgages got a bad reputation in the aftermath of the real estate market crash…which should be called the Wall Street Greed crash…because lenders were writing loans that never should have seen the light of day and would land somebody in jail today. Note that they did that, often, at the behest of Wall Street brokers who needed sub-prime loans to fill tranches blah blah blah. HOWEVER…not all adjustables are bad. If you are responsible and do your homework, an adjustable rate mortgage can be a way to beat the rising rates for the short term. But you will need to be in a good financial position to refinance when the time comes.
Bottom line is this: In our market here in the Triangle, every seller expects a loan approval letter (some a pre qualification letter) to accompany your offer to purchase, otherwise your offer might be rejected immediately. So you’ve had to have at least one conversation with a lender in order to get that. Make it a meaningful conversation, a deep dive into your options…all of them…so that you get the most bang for your hard earned bucks. In other words, don’t let rising rates put you out your dream of buying a home. There are GOOD ways for responsible buyers to nab a low rate.