Home Buying Tips January 19, 2022

How rising interest rates affect potential homebuyers

Mortgage interest rates are grabbing headlines and rightfully so. There was a significant jump in rates recently with Freddie Mac’s latest 30-year fixed-rate mortgage average hitting 3.45%. As Freddie Mac’s economists note, this was due in large part to actions taken by the Federal Reserve.

In a statement, Freddie Mac economists note, “Mortgage rates rose across all mortgage loan types, with the 30-year fixed-rate mortgage increasing by almost a quarter of a percent from last week. This was driven by the prospect of a faster than expected tightening of monetary policy in response to continued inflation exacerbated by uncertainty in labor and supply chains. The rise in mortgage rates so far this year has not yet affected purchase demand, but given the fast pace of home price growth, it will likely dampen demand in the near future.”

Home price growth, while slowing ever so slightly, was still accelerating at a pace above 18%. The National Association of Realtors (NAR) shows the median sales price for an existing home is up by 13.9% year over year (for the month of November) with inventory of existing homes for sale down to just 2.1 months. That means it would take just over two months at the current sales pace to deplete inventory.

Rising interest rates could help slow the pace of demand and ease competition, but rising rates will also offset a lot of the affordability buyers had when rates were at recent historic lows.


What does all of this mean for homebuyers moving into the popular spring homebuying season? Well, it depends on what you want to do.

The first inclination for homebuyers is to feel like they’re priced out of the market. That’s understandable because the 30-year fixed-rate mortgage has become ubiquitous in the world of housing. The reason why it is extremely important to talk to a Movement Mortgage loan officer is they can give you a lot of options that may end up fitting your budget better.

Many loans are offered with various terms. You have probably heard of an adjustable-rate mortgage (ARM) before but weren’t sure if it would be right for you. There are risks involved just like any other loan you would take out, but, ARM mortgages typically come with much lower interest rates over the first few years. Right now, Freddie Mac’s data shows a 5/1 ARM with an average interest rate of about 2.56%. As always, interest rate is important but it’s not the only major factor when it comes to picking a loan program that’s right for you and your situation. The best thing to do is talk to a Movement Mortgage loan officer in our area to make sure you have the most information to make the best decision.

Keep in mind if you are looking to buy a second home or will need to use the high balance option through the Federal Housing Finance Agency (FHFA), you need to likely act fast. The FHFA instituted a fee increase on upfront fees for high balance and second home loans and those fees often get passed on to the consumer in the form of higher interest rates. This is for loans delivered to the agencies on or after April 1, 2022. Make sure you are in contact with your Movement Mortgage loan officer to ensure you don’t incur more cost than you have to.

Whether you’re buying, selling, refinancing, or building your dream home, you have a lot riding on your loan officer. We love working with Hung Le at Movement Mortgage for that very reason. As an experienced loan officer, Hung has the knowledge and expertise you need to explore the many financing options available. Ensuring that you make the right choice for you and your family is his ultimate goal, and he is committed to providing his customers with mortgage services that exceed their expectations!