Mortgage rates have started rising. What are other homeowners and home buyers doing?
They say that many things come in threes and when it comes to mortgage rates, nothing could be more true. First, in May 2013, Fed Chairman Ben Bernanke announced that bond purchases would be slowed down, then interest rates began increasing the same month, then in June 2013 after the Fed met, the average 30-year mortgage loan spiked to the highest in one week in 26 years—from 3.93% to 4.46%. With so much flux in the real estate market, what’s the best move for new home loan and refinance applicants?
In a nutshell: Act fast but don’t panic.
Applicants are Sprinting
It is a daunting time for those in the midst of a home loan application: Naghi Prasad, a homeowner in San Ramon CA, is currently applying for a 7/1 ARM with several lenders, moving from his 5/1 ARM from two years ago. “The window I have to rate lock and refinance is small, it’s going to creep up rapidly,” he said “I have to act aggressively with many mortgage refinancers to get the best rate. The good news is I am pretty far along in the process, but I am still concerned.”
Peter Madams, a homeowner in Placerville CA, is taking a different approach: He is looking at refinancing and a home equity loan from multiple lenders to invest in home improvements like solar panels, “Pursuing different financing options is going to give me the most flexibility to get the best rate. A home equity loan means I won’t have to pay anything until I draw from it. I’m also trying to get this loan done quickly,” he said.
The Real Estate Market: A Long Jog
”We don’t know how long and how high these mortgage rates are going to go but don’t second guess the market. You should still try to get in the housing market now. We are not in a bubble like some think.” said Carl Medford, a Realtor with Prudential Real Estate, instructor, and writer for several residential real estate publications. “There is always uptick in activity when rates go up and we expect to see that over the summer. Overall economy is still fragile, but we do know the housing market is going to continue to be strong.”
Looking Ahead on Rates
Lenders are not immune from the mortgage rates roller coaster climb, but have a different point of view—an historical context. “People are shell-shocked, but in the big scheme the rates are really low, people forget about when 10% was normal for home mortgage rates,” said Eva Strnad, Vice President of Mortgage Lending, Union Bank, who closed $18m in home loans in June. “Quick increases in a short time take getting used to, but it’s all a reaction to the markets, and once those settle out I think we will be ok. I don’t think it will have much impact …unless rates keep going up of course.” Which is exactly the point. No one knows definitively what is going to happen with mortgage rates, the economy, or the housing market long-term.
Getting to the Financing Finish Line
If you’re in the process of getting a home loan, contemplating a house purchase, or refinancing, take these steps:
- Get pre-approved for a loan as quickly as possible to lock in your mortgage rate
- Don’t hedge your bets on the real estate market changing — there is no clear answer
- If your lender is slow, get competing offers as soon as possible
- Don’t max out your pre-approval amount ; you’ll get less purchasing power for your money now. Talk to your lender about the effects on both your down payment and monthly mortgage
- If you are refinancing, consider other options like a home equity loan
- Most importantly, remain calm: These rate jumps are minimal in comparison to the times of 10%+ interest rates of the past