Mortgage Interest Rates Are On The Rise.

Slowly Creeping Up.

In the midst of the frenetic pace of our local real estate market, there has been a quiet change happening behind the scenes: Home mortgage interest rates have been slowing creeping up, and buyers are now starting to sit up and take notice.

This month, rates inched up to their highest levels since March of 2020, according to a local mortgage broker. To put that into proper perspective, the average 30-year fixed loan is now running around 3.2%, which is still incredibly low by historical standards. But only a few months ago, that very same loan rate started with a 2, and this slight increase is being amplified by the rapid increase in the price of local housing. Many buyers already have to stretch their budgets just to get into the local housing market, and this is just making things that much tighter for them.

Inflation, Recovery.

There are a variety of opinions as to why rates are starting to climb. With all of the money that is being pumped into the recovery of our economy by the government, there is a very real fear that inflation may once again become a reality. We've had a run of over a decade where inflation was never even a consideration, and federal policies kept the interest rates low in an effort to stabilize the economy. But the pandemic, and the herculean spending by our government to keep the economy afloat, is going to change that.

The new administration just approved a $1.9 trillion (with a T) recovery bill aimed at helping citizens and small businesses survive the prolonged downturn. While this is certainly a lifeline for many in the short term, it may have negative implications in the not-to-distant future. According to one financial planner that I spoke with, that much money cannot be pumped into an economy without having some sort of inflationary reaction. This becomes even more likely when you consider that the overall economy is on the verge of recovering as COVID vaccines become readily available, and workplaces gear up for some sort of re-opening. While we may not see significant inflationary signals right away, I'm reading more opinion pieces that target 2023 as the year that we'll start to feel it.

What You Can Do.

It's of course impossible to predict where rates are ultimately going to go. Many “experts” have tried to predict where our housing market is going, and have probably been wrong more often than right. But with rates clearly inching upward, there are three things you should do to protect yourself.

• Double-check your pre-approval. This is sage advice regardless of where rates are. But if you're getting ready to write an offer on a home, be sure that the rate you've been quoted on your pre-approval letter is still valid. As I mentioned above, the fiercely competitive nature of our local market is forcing many buyers to stretch higher than they anticipated to get in, so you don't need the added surprise of finding out that your payment is going to be even higher than you thought.
• Consider all loan options: The 30-year fixed rate mortgage is often the benchmark we use for comparing rates, but that may not always be the best option for you. If you only plan on staying in your house for 10 years or less, you should consider an adjustable rate mortgage (ARM). Usually ARM's have a more attractive introductory rate that what you'll find in a fixed-rate loan, and with the intro rate lasting as long as 10 years with some ARM's, it's an easy way to keep your payments reasonable. Ask your loan agent to review all of your options.
• Shop around. Not all lenders are quoting the same rates or offering the same packages. This is especially true when it comes to taking RSU's and other equities into account. Many lenders will offer you a much better rate if you move a significant portion of your money to their institution too.

If you're not sure who to call, feel free to contact me. I have a list of great local lenders that I'm happy to put you in contact with. The bottom line is that the era of “free money” is likely coming to and end at some point, and it's more important than ever to keep a very close eye on rates.