With Interest Rates Rising, Should You Still Buy?
Posted by Richard on December 15, 2022
If you are ready, yes, you should buy.
Interest rates are higher than they have been in a few years. However, when it comes to interest rates, you have to live in the present. No one can know what will happen in a year. If you buy now, and interest rates rise in the next year, your rate is locked in and your payments won’t change — but rents will rise with inflation. On the other hand, if you buy now, and in a couple years rates go down, you can still refinance. So you have options.
Rising interest rates also have a downward pressure on prices and availability. In June 2022, the number of houses for sale increased 19 percent. Today, you have more choices and less competition to buy.
Of course, there are those who get out their crystal ball and gamble that inflation will go down and the Fed will begin reducing interest rates, so they decide to put off a purchase.
The ARM option
Increasingly common today are buyers who get adjustable-rate mortgages (ARM). In the short term, these mortgages have lower rates over five to 10 years and, if you qualify, you could spend more for a home while making lower payments. More people are doing this. In mid-2022, adjustable-rate mortgages made up 10 percent of all new home applications.
ARMs are much less risky today than they were prior to 2008. Today, the initial fixed-rate period on an ARM can last as long as 10 years and there are caps on how much it can rise.
The key question is whether you are ready to buy. If you have your down payment, your debt is low, and your employment is steady, then it’s time to start using your money to build equity in your own home.
You’ll have tax advantages since property taxes and mortgage interest are tax deductible and the value of your house is likely to rise over the years.