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The past few years have been tough for home buyers. As mortgage rates climbing in tandem with the Federal Reserve’s benchmark rate, many would-be buyers find themselves in a holding pattern, watching from the sidelines as they wait for the right time to enter the market. And, that decision may seem wiser when mortgage rate is 8% in October 2023 – the highest in two decades.
However, recent changes in the economic landscape have begun to change this calculus. Inflation is showing signs of coolingand we see the appropriate dip in mortgage rates. This trend is largely driven by the anticipation of future rate cuts by the Federal Reserve – which is currently expected to cut rates. only once in 2024.
But a Fed rate cut may not happen a few more months. And, you may not want to wait until the Fed cuts rates to make a move. It can make more sense to start and lock in the mortgage rate just now.
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5 great reasons to lock in your current mortgage rate
Here are a few reasons why locking in mortgage rates now could be a smart move:
Mortgage rates are at a four-month low
The average 30-year fixed mortgage rate is currently at 6.77%, the lowest it has been in four months. This represents a significant decline from the most recent peak of above 8%. For prospective buyers, this reduction can be a huge savings over the life of the loan.
To put that in perspective, on a $300,000 mortgage, the difference between an 8% rate and a 6.77% rate is about $260 per month. Over 30 years, that adds up to a savings of nearly $94,000. This dramatic difference underlines why many buyers who were priced out of the market a few months ago are now wanting to reconsider their choice.
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Waiting can be risky
While current mortgage rate trends are encouraging, it’s important to remember that the economic landscape can change quickly. Inflation, which is currently persistently high, may yet reverse. If this happens, we can see mortgage rates are rising again.
And, the Federal Reserve has indicated that it plans to keep interest rates up until inflation can be controlled. While many economists predict a rate cut will occur in 2024, the timing and extent of the cuts remain uncertain. According to lock in the current rateyou protect yourself against potential future increases, should they occur.
Housing inventory remains limited in most markets
While some markets have seen improvements in inventory, the availability of for-sale homes stay tight in many areas. And, if mortgage rates continue to fall, more buyers will enter the market, which could exacerbate the inventory problem.
In low-inventory environments, desirable properties often receive multiple offers and sell quickly, which can make it difficult to land a contract on a home. But by securing a mortgage rate today, you can act quickly when it comes to finding a home that meets your needs. This can be important in a competitive market, although a one-day delay may result in no property.
Future refinancing is an option if rates drop again
One concern some buyers have about locking in rates now is the possibility of losing them if rates continue to fall. However, it is important to remember refinancing is always an option if the rate drops significantly in the future.
While refinancing comes with some costs, these often outweigh the potential savings if rates drop substantially. And, by locking in now, you secure a rate that fits your budget now while maintaining the flexibility to take advantage of potentially lower rates in the future.
There is potential for future appreciation
While no one can predict the future of the housing market with certainty, historical trends show that real estate tends to appreciate over time. And, that’s been true over the past few years, as the lack of home inventory has helped home values ​​increase significantly — exponentially. amount of equity the average home owner owns a home.
And, by locking in your mortgage rate and buying a home now, you can start building home equity now. Each monthly mortgage payment you make reduces the amount you owe, thereby increasing your equity.
The value of the house must keep going up, which will only add to the equity equation. But even if home prices remain stable or see a slight decline in the short term, the long-term trend is usually upward, so it doesn’t hurt to start the process now.
Bottom line
While the decision to buy a home is very personal and depends on your circumstances, the current economic climate makes a strong case for locking in your current mortgage rate. After all, the combination of lower rates, limited inventory and the potential for future market changes creates opportunities for those who are ready to act.
However, it is very important to approach this decision carefully. Your financial situation, job stability and long-term plans should be factors in your decision. Remember, the goal is not just to buy a home, but to do it in a way that fits your financial goals and lifestyle needs.
