Interest rates are rising post-pandemic, should you lock in an interest rate before they get any higher?
Even for those who tend to stay out of the mainstream news of real estate prices and trends, it would be an effort not to be privy to the volatility that last year’s economy brought onto the housing market. Cities were snowballing with rising housing prices, all while labor and supply shortages complicated construction, maintenance needs, and the rest of the industry.
The housing boom truly was a perfect storm. The lack of broader control in the world encouraged antsy buyers to secure their dream homes, and work-from-home setups suddenly seemed more suited to more spacious spaces. Not to mention the commotion of quarantining while all family members are home, it’s no wonder that many of us were craving some more space!
For all these reasons and more, the U.S. housing market gained more value in 2020 than it has in any other year since 2005. Mortgage rates also crept down to nearly all-time lows, as the Federal Reserve funneled funding into the market in attempt to maintain stability.
This was a strange period of time as many prospective homebuyers were maintaining stable incomes (often with the added bonus of a stimulus check), all while record-low interest rates (about 3%) were making it more feasible to make a significant purchase. Pair this with the inability to create new houses due to labor and supply shortages, and you have the 2020 real estate boom.
And while it seems like the height of this pandemonium is past us (for now), there are many people who are ready to make their housing purchases in this post-chaos bliss. For those who fall into this category, we’re going to break down where the interest rates are at now, and when the best time is to lock in your interest rate. These low-interest incentives will eventually cycle back to pre-pandemic rates, and we’re here to help you maximize your opportunity in this unusual time.
So, what do interest rates look like now?
It’s mid-November, 2021, and interest rates are still within the 3% range that they were at in the depths of the pandemic. We’re seeing them rise a bit, but think 3.15-3.20%. For reference, interest rates were at 3.72% in January, 2020…AKA the calm before the storm. It should be noted that these rates are for a 30-year mortgage. 15-year loans will be significantly lower, typically in the mid-2% range, as buyers are only borrowing the money for half the amount of time.
Inflation plays a significant role in interest rates, and in October, the annual U.S. inflation rate was at a 30-year high. Sheeesh, that’s high. It’s also reason to believe that interest rates will start rising again by the end of the year. Another factor in interest rates is the strength of the economy, which has also been significantly improving since it hit its recent rock bottom in March, 2020. People are spending money and working again, which creates a stronger economy and will likely lead to increased interest rates. And let’s bring into play some more personal factors: people are feeling more confident and comfortable with the state of the world, the health of their families, and their ability to live the lives they once were living. This all contributes to a stronger economy, and is part of the reason we should expect to see more “normalized” interest rates in the future.
Should I secure a current interest rate before the trend continues to rise?
When it comes to making your decision to hop on the house-buying bandwagon before interest rates hike back up, there are a few things to keep in mind.
- Just because interest rates will likely continue to rise, doesn’t mean you should rush your long-term investment and decision to buy a house
- If you do decide you’re ready to shop around for mortgage lenders on a prospective purchase, Refily’s comparison marketplace will help you find the best lender for your situation
- If you are ready to buy a property and you’ve found your winning mortgage, sooner is likely better than later if you’re hoping to lock in a lower interest rate
Once you are moving toward accepting a mortgage offer, there are generally two ways to select an interest rate: either locking in or floating the rate. “Locking in” means that the rate will remain constant for the duration of the intermediary process before the deal is closed, as long as the deal is closed before the lock expires (usually 30-60 days). If the buyer chooses not to lock in initially, the interest rates still have the ability to fluctuate before the deal is closed. That is the risk run by “floating a rate”. Due to the predicted rising trends in the near future, locking in a rate will likely be the smartest decision should you choose to take out a mortgage, especially since it could take months to officially close on a loan.
There is the possibility that rates could drop after locking in a rate, but given the current economic circumstances, this isn’t likely. Mortgage rate locks will occasionally cost a very small portion of the loan, but this will overwhelmingly be worth the risk of the additional fees should the interest rates increase. And lastly, if your mortgage rate lock looks like it’s going to expire before the deal goes through, you may need to purchase a lock-extension. These are all additional costs to be aware of before making your decisions, and Refily’s platform can help you to easily make sense of all these costs so you can feel confident and knowledgeable on your decision.
Refily is a lender comparison marketplace that joins technology to create a robust, data-based, and attentive platform to ease the process of finding a lender and presents buyers with the best comparison possible.