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Mortgage Rates: Is It Too Late For a Great Deal?

Personal Finance
For sale sign outside a family house

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For years, it seemed mortgage interest rates did nothing but inch downwards. Every time we thought the rates couldn’t go any lower, they proved us wrong.

They’re finally headed back up – and not by inches, either. Mortgage rates on 30-year fixed loans have moved up sharply in the last month.

If you’re in the market for a house, however, you shouldn’t give up. Here’s why:

Mortgage rates are still relatively low

Yes, we got spoiled by rates under 4% for 30-year fixed loans. In December of 2012, 30-year mortgages set a record low at 3.50%. As of July 2013, rates are suddenly around 4.5% – a full point higher.

That’s still a great deal. As recently as 2008, the going rate was 6.32%, and in the 1980s, people were paying over 10% on mortgage interest. It’s a wonder anyone could buy a house at all.

That makes today’s 4.5% rate not look so bad.

At 4.5% on a 30-year fixed loan, you’ll pay $507 per month for every $100,000 you borrow. That’s only $58 more per month than you would have paid if you’d locked in a mortgage last December, at the bottom of the market.

The price of the house is more important

Housing prices are still at historic lows in some markets. Some of the areas hardest hit by the recession, such as Florida, offer such great deals that international buyers are snatching them up.

Don’t worry so much about the rate on your mortgage that you pass by the chance of a lifetime to buy a home.

If we had to choose between a house at a low price and a higher mortgage, and a higher-priced house with a low mortgage, we’d take the house with the low price any day.

You can refinance the house if mortgage interest rates go down again, or you can sell the house or pay off the mortgage. If you overpay on the price of the home, your options are more limited.

Get the best mortgage rate you can

To make sure you get the best mortgage rate you possibly can, the first thing you should do is check your credit report.

Your credit history should show a good track record of paying your bills and being responsible with credit. If you see any issues, try to resolve them.

Consider getting a shorter-term loan or an adjustable rate mortgage.

If you can afford to pay more on your mortgage every month, why not pay it off in half the time? You’ll get a better mortgage rate on a 15- or 20-year loan, which helps offset your higher monthly principal payments.

If you don’t expect to live in your house for more than five or seven years, consider getting an adjustable rate mortgage (ARM). You can get a lower rate on an ARM than on a fixed-rate loan, although the rates can rise at the end of the initial period.

Don’t get an ARM unless you’re confident could make the higher payments if you still own the home when the rates could go up.

Do you think mortgage interest rates will ever be in the double digits again?

Photo credit: i am real estate photographer via photopin cc

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