Investment propertyPoint: Don"t Sweat Mortgage Rates Too Much
As a new home buyer, you have had so many decisions to make. But,
once you found the right home, many of the decisions seemed to be almost
enjoyable. Choosing carpet, and deciding how many extra phone and cable TV
outlets to add may have been the least of your problems when compared to
deciding what interest rate to lock in at. So, you"ve checked the paper
daily, or listened to the radio on the way home from work to see what happened
to interest rates, and you still don"t know what on earth to do. Do I lock in
now? It was 6.75% and today"s rate is standing at 7%. What if rates get
lower, you ask? After all, you want the lowest rate possible, so you call
your loan agent and drill him for advice. How can you be sure you are getting
the best rate?
I think, perhaps, it"s time to put this all into perspective. Have we lost sight of what are indeed low interest rates? Although "low" is a relative term, I believe buyers today are somewhat spoiled. Back in the early
1980"s when my husband and I bought our first home, rates were double what
they are today, and, although we decided to opt for an adjustable rate
mortgage for a lower start rate, it adjusted to a double digit number six
months later. As home buyers, however, we focused instead on the power a new
home purchase gave us in a growing area. Home prices were steadily going up,
and this investment, we hoped, would give us the ability to move up to a
larger home someday.
So, let"s look at the motivating factor behind your new home purchase.
"Home"
means shelter for most of us, but it"s also a place to celebrate Thanksgiving
dinners, a baby"s first step, or an important anniversary. For a first time
buyer, move-up buyer, or empty nester, the motivations to buy are different,
however commonly linked. We all seem to be looking forward to our next home
purchase regardless of where we are in the marketplace. So, you"ll need to ask
yourself: Is an interest rate jump from 7% to 71/2 % enough to stop you from
buying that new home?
Similar to the fear factor we may have felt when wondering whether to jump
into the stock market, we have some phobias when buying a home. Let"s face it.
If any of us knew where rates were going to go next, we wouldn"t need
mortgages. And lenders always look like the bad guys, which is really unfair.
If your loan agent tells you to lock your rate and then rates go down, he"s no
good. If he tells you to let your rate float and rates go up, he"s still the
bad guy. He can"t win! Although your lender may be able to spot "trends" in
interest rate movement, none of us really know where rates will go. It"s just
a matter of finding a rate you are comfortable with during the process. Most
lending institutions offer a free rate lock at 60 days to the completion on a
new home, and many will offer locks for a more extended period of time for a
price (either a higher rate or higher fees). Is it the most comfortable for
you to lock your rate as early in the process as possible, or are you willing
to "wait it out" based on the anticipation that rates may go down as you
approach the close of escrow? No one can make this decision for you, just as
no one can tell you what color carpet is the "right" color to select. In
many instances, buyers lock in at the first hint of an interest rate hike,
only to find interest rates starting to fall in the ensuing weeks.
Emotions tend to color our perceptions when we are buying a new home. So
many
decisions to make, and so much to look forward to. I guess my armchair
philosopher"s standpoint on interest rates in today"s market is this: Try not
to sweat the small stuff and look at the big picture. The mere thought of not
buying in today"s environment of historically low interest rates makes me
harken to days not long ago, when homeowners clamored to refinance their homes
to the rates we are experiencing today. And, try not to "beat up" your loan
agent too badly on a jump in rates that may mean a difference of a dinner out
with the family once a month.