High interest rates are extremely intimidating to homebuyers, especially if you’ve never purchased a house before. Understandably so, borrowing money at high interest rate can appear like it will cost you your entire fortune. If these explosively high rates were so financially crushing, why are some people still taking out loans and buying houses? As frightening as these interest rates can seem, there are ways to go about buying a home with a mortgage in today’s market where it does make sense.
Here are 3 actionable and powerful reasons to not be afraid of high interest rates when preparing to purchase a home.
- Refinance Options
A large number of mortgages that are available for homeowners to borrow have the ability to be refinanced at a later date. That means you are not locked into your high interest rate forever. Certain homebuyers prefer variable interest rates loans. When selecting this type of loan product, your rate will fluctuate with the ever-changing interest rates. While this approach can seem appealing, you can end up with unexpectedly high rates if the market shifts in that direction. Vice versa, if you get a fixed-rate mortgage, although it may appear high now, you’ll likely have the option to refinance later on.
When using the original lender that you used for your initial loan, refinancing isn’t very cumbersome. Continue to watch the interest rates and market to help identify the best time to refinance your mortgage. Don’t let high rates deter you from purchasing the home of your dreams. Long-term real estate investors that truly believe in a market will purchase rental properties regardless of many market conditions. Enter a potential real estate transaction with confidence even if rates are viewed as high.
- Lower Principal
Now knowing that you can be confident in refinancing your loan once interest rates drop, you can consider other reasons to not be afraid of them. For instance, although interest rates are currently high, property values are dropping in most markets. This means that if you purchase a home now, the overall principal amount on your loan will be less than it would’ve been last year.
You can purchase a property now for a lesser amount and a higher interest rate, and then refinance that interest rate once the rates come down. SD House Guys, a company that buys houses in San Diego, encourages people to jump into the real estate market now that values are going down. “The market will eventually bounce back and values will go up again. This will price some buyers out of the market. If you can afford to pay the high interest rate now for a few months until the rates finally go down, you could do very well for yourself.”
- Interest Rates are Relative
Everything in life is relative, including interest rates. Decades ago, interest rates were in the double digits. Can you imagine taking out a loan with a 16% interest rate? Compared to the interest rates back then, right now doesn’t feel too bad. The real estate market got spoiled with low interest rates in the 2-3% range. Those were extremely low! Not saying we cannot reach those levels again, but for all things considered, today’s interest rates aren’t as high as they could be and have been.