Rates are rising, but the Fed may postpone 2019 rate hikes.
Is now a good time to get a mortgage?
In the not so distant past, interest rates on a mortgage were above 10%!
That’s unthinkable now since rates have been below 8% since 2000.
In this article, we will discuss the Fed rate hikes to see if now is a good time to buy a house.
The Fed may Hold off on Additional Rate Hikes
The stock market has been extremely volatile over the past couple of months due to trade uncertainty and rising interest rates. Trump has taken notice and is pushing for lower rate hikes, and it might be working.
Recently Collin Powell suggested that current interest rates are just below neutral and that no more than a single rate hike should be necessary.
Interest Rates Over the Past 50 Years
As you can see from the rate chart above, interest rates have declined significantly over the years.
But there has been lots of panic from both buyers and sellers about the rising interest rates so far in 2018.
This has had a big impact on the number of refinances since rates are higher than they have been since 2012.
Interest Rates Today
Higher Mortgage Rates are Slowing Down Home Sales
Newly built home sales are down 13% compared to 2017. Rates are now roughly 1 full percent higher than they were a year ago, and sales are dropping.
Mortgage experts are predicting that interest rates will continue to rise above 5% into 2019.
While rising rates may put off those wanting to purchase a new home, they shouldn’t be. Interest rates increase as the economy improves. If mortgage rates decline in the future, it almost certainly means the economy is struggling.
So should you buy with rising rates? YES!
If you were to close on a mortgage today, you would have an interest rate of around 5%. While it may seem high compared to where rates were a year ago, it’s still a great interest rate.
How to Get the Lowest Rates on Your Mortgage
Several factors determine the interest rate you’ll receive on a loan. Obviously, the prime rate is the factor that will determine a base rate. However, fico scores and debt-to-income ratios also come into play.
Improve Your Credit Score
Before applying for a home loan, you should work on improving your credit score before applying. One of the most common ways consumers can increase their credit rating is to pay down their credit card balances.
The credit utilization ratio is the amount of credit available to you that you are using.
For example: If you have a credit card with a $10,000 credit limit and your balance is $5,000, your credit utilization ratio is 50%, which is very high.
We recommend getting your utilization ratio below 20%.
Compare Rates with Multiple Lenders
Rates vary from lender to lender, so it’s best to check rates from at least 3-4 lenders to ensure you’re getting a competitive rate. Mortgage companies will give you a loan estimate that breaks down all fees, closing costs, and interest rates.
You can use these loan estimates to help you negotiate the best deal.
When comparing rates, make sure you do it within the 14-day rate shopping window allowed by Fico. Multiple credit inquiries will only count as a single inquiry as long as it is within the rate shopping window.
Want more tips? Read our article on 5 effective ways to get the best mortgage rates.