How Rising Mortgage Interest Rates Are Influencing Home-Buying Decisions

Anybody who’s thinking about buying a home might be interested in knowing the average mortgage rate. As of January 2023, the average mortgage rate sits right around 6.59%. That’s more than double the rate that borrowers were getting in early 2021.

With mortgage interest rates rocketing upwards, many potential home-buyers are looking for advice on what to do. Some home buyers are waiting to buy. Others are figuring out creative ways to get the lowest possible interest rate.

If you’re thinking about buying a home in 2023, this article is for you. In this piece, you’ll find some information on how interest rates are influencing home-buying decisions. Continue reading to learn more.

Smart Homebuyers Are Shoring up Their Finances

The best way to get a lower interest rate is to make sure your finances are in good order. That means reducing your debt, fixing your credit score, and saving up for a large downpayment. Experts say that it’s still possible to find affordable housing in a high-interest-rate environment:

"There are still ways for first-time home buyers to make housing more affordable, even with interest rates being at their highest levels since 2003. Interest rates for individual home buyers can vary significantly depending on several factors, including their credit score & down payment, prevailing market rates, and the lender they choose”

- Nic Dixon, Broker Associate at Keller Williams Cityside in Metro Atlanta.

Seeing high mortgage rates in news headlines shouldn’t scare you off from buying a home. The average mortgage rate may not be the same rate that you end up getting. If you shop around for different lenders, you can usually find a mortgage rate that allows you to buy a home.

Homebuyers Are Watching Other Factors beyond the Interest Rate

The truth is that the interest rate is only one variable to consider when you’re estimating mortgage costs. There are various protections in place for borrowers.

These protections require lenders to be upfront about costs. Real estate experts say home buyers should pay close attention to the APR.

“It's important to consider the annual percentage rate (APR), which includes not only the interest rate but also any fees or charges associated with the loan.

This can give a more accurate picture of the true cost of borrowing and help borrowers compare the costs of different loans. “Under the Truth in Lending Act, lenders are required to disclose the APR to borrowers in a clear and easy-to-understand way.”

- Nic Dixon, Broker Associate at Keller Williams Cityside in Metro Atlanta.

It’s also important to consider the full monthly payment when you’re buying a home. While interest rates may be high, home prices are coming down in some markets.

That means you may be able to get a good deal on a home despite paying more in interest than you would have last year. Be sure to ask your real estate agent and mortgage lender about the prices and interest rates you can afford. It may look a lot different now than it will in 6-months to a year.

First-Time Home Buyers Are Taking Advantage of Incentives

If you’re a first-time home buyer, you have some advantages. You can often put a lower downpayment down, and you can pull money from certain retirement accounts without paying a penalty. You should always double-check to see if you can qualify as a first-time home buyer.

Experts say you can be considered a first-time home buyer even if you’ve already owned a home:

"Home buyers should be aware that they may still qualify as a first-time homeowner even if they have owned a home or had their name on a mortgage in the past three years.

Additionally, mortgage points can be used to lower the interest rate on a loan by paying a fee to the lender, and a 2-1 buydown can temporarily reduce the interest rate for the first two years of the mortgage.”

- Nic Dixon, Broker Associate at Keller Williams Cityside in Metro Atlanta.

First-time homebuyers can also sometimes qualify for down payment assistance. You may be able to apply for programs that will provide you with interest-free loans for your downpayment. These loans are usually paid back as part of your mortgage.

Homebuyers Are Looking at Different Types of Loans

When most home buyers think about getting a mortgage, they think about a 30-year fixed-rate mortgage. However, different types of loans have different interest rates. Real estate expert Nic Dixon explains:

“Borrowers can also choose between a fixed-rate loan with a constant interest rate throughout the borrowing period or a variable-rate loan with an interest rate that changes over time.

While variable rate loans may have lower interest rates initially, they come with the risk of changing payments and may not be a good fit for borrowers who prefer predictable monthly costs."

- Nic Dixon, Broker Associate at Keller Williams Cityside in Metro Atlanta.

If you choose to get a variable-rate loan, you need to closely look at your finances. Ask yourself if you can still afford the mortgage if your rate goes up.

What about if it goes up again? It’s tempting to assume rates will go down in the future, but that isn’t always the case. The last thing you want to do is get locked into a loan that you’re unable to afford.

Reviewing How Mortgage Interest Rates Are Affecting the Market

Martin Orefice, the CEO of Rent To Own Labs, says: One resource you should always explore when looking for the best possible mortgage rates is government-sponsored mortgage programs, particularly FHA, USDA, and VA loans. In addition to being available with lower down payments and looser credit requirements, these loans will also offer below-market interest rates to well-qualified borrowers. FHA loans are primarily targeted at first-time homebuyers anywhere in the country. USDA loans are available to anyone, but only on select properties that are almost exclusively in rural areas. VA loans are only available to current or former members of the U.S. Military and their families.

Now you know how high mortgage interest rates are influencing home-buying decisions. This information should help you determine when it’s right for you to buy a home. When you’re ready to find a home, check out the realtors available on this list from Realty Biz News.