Interest Rates on the Rise—How it Affects Buying a Home Today

A couple looking at their paperwork for buying a home.

Interest Rates on the Rise—How it Affects Buying a Home Today

June 30, 2022

In the world of real estate, the market is prone to shift and the future of where it is going can sometimes be filled with uncertainty. Politics, inflation, a pandemic, and war have all played a role in how the recent homebuying market landscape has shifted and with that, interest rates have increased from historic lows to a more average rate. Perhaps you’re of the opinion that waiting to buy your home until interest rates go down is in your best interest. If that is the case, you may be waiting longer than you expect, while throwing more money down the drain renting a home or apartment that you don’t love or just staying in a home that is not complementing your lifestyle, instead of investing that money into the new construction home you’ve been dreaming of owning. At Homes by Taber, our team would like nothing more than to tell you with absolute certainty that interest rates will go down within the coming months, but the reality is that you may not hear these words from anyone for a while. 

Within the new home construction industry throughout the Greater Oklahoma City and Tulsa areas, the incredible mortgage professionals we work with at Stride Mortgage are receiving a number of questions from prospective homeowners about the state of the current market and we wanted to share some of their industry insights with home shoppers to help set their minds at ease.  

What inflation means for potential homebuyers

Although inflation isn’t something we can really predict, it is something that we can work to better understand. It is actually the main reason why we are seeing interest rates continue to rise within the home buying industry. When individuals who are looking to buy a new home hear about increasing interest rates, their minds seem to inevitably shift toward waiting it out until interest rates start to decrease, but that could end up losing you even more money in the long run.  

When you purchase a new home, the overall cost may seem intimidating, but once you get past this initial payment, you might be surprised at just how manageable your monthly mortgage payments turn out to be. The home buying market isn’t the only thing being affected by inflation, and anyone who is renewing their lease on a rental property or is searching for a new home to rent knows just how much monthly rent is increasing as well. Across the state of Oklahoma and the wider United States, rent prices are skyrocketing at an even higher rate than home prices. Without a certain end date in sight for interest rates to drop, the money you spend each month on rent can quickly add up without any return on your investment. 

Real-life scenarios 

Some potential homeowners are also looking into the option of buying down their interest rates with their lenders. If your monthly payment is the most important factor, this may be the best option for you.  Sometimes, it’s easier to understand a certain concept when you see how it’s compared to real-world scenarios. 

In one scenario, a homeowner purchasing a new home for $400,000 with a conventional loan was given a 6.5% interest rate, but elected to buy the rate down to 6%. With this buy down, their mortgage went down $123 each month. 

A graphic showing how much half a point affects your monthly mortgage payment.

In another scenario, a homeowner purchasing a new home for $350,000 with a conventional loan was given a 6.5% interest rate, but elected to buy the rate down to 6%. With this buy down, their mortgage went down $108 each month. 

Buying down your rate is a great option for you if your monthly payment is most important to you. However, depending on the price point of your new construction home and the interest rate percentage you were able to secure, the rise you’ll see in your monthly mortgage payment can more often than not be easily made up by reducing your spending on a few minimal things each month. Whether it’s by making coffee at home each day instead of going on your morning coffee run or cutting back on eating out once or twice a month, changes such as these can actually have a large effect at closing the difference between what you’re currently paying for your mortgage. 

When it comes to the rise in monthly mortgage payments and interest rates, it can sometimes be easier to think about these prices as they relate to everyday items we tend to spend our money on.  Keep in mind when working through scenarios there are many factors to account for your mortgage rate, including credit score, debt to income ratios, income, and more that a lending professional can walk you through so you are able to make the most informed decision with real-world numbers.

The act of refinancing

Refinancing your home is a phrase that keeps coming up when discussing the current home market, but if you’re unfamiliar with the term you may not understand just how good this could be for you. In today’s market, mortgage lending professionals are receiving a number of questions from potential homeowners who are trying to understand if it is worth buying a new home now, or waiting until prices or rates drop. It’s been said to buy the home and date the rate, meaning to secure the home you love and refinance the rate you don’t love later. With the future a blind spot for everyone in the industry, many professionals are urging potential buyers to act now and look into refinancing at a later date. 

If you’re unfamiliar with how refinancing your home would work, it’s really quite simple. When you refinance your home, essentially what you’re doing is re-purchasing it. For this to happen, you’ll go through a few steps, including setting up an appraisal on the home to check the value. Some individuals think that in order to refinance their home, they’ll hand over even more money, similar to when they purchased it the first time, but this is not usually the reality of the situation. When you purchase your home for the first time, you begin gaining equity on it. With the equity you’ve gained, you’ll be able to use it to pay down your closing costs until the only thing you’ll truly be paying for out of pocket when you choose to refinance is the cost of the appraisal. 

Why are we talking about refinancing when we’re discussing a new home? Simply put, if you purchase a new home now with interest rates high, you would be able to refinance your home when interest rates decrease in the future. Interest rates are expected to rise even higher. As it is still uncertain as to when exactly we will see interest rates go back down, many homeowners are choosing to buy their new construction homes now before interest rates rise too much higher. This means that they will pay slightly more on their monthly mortgage payments with the higher rate for a period of time, but with a plan of meeting with their lending professional as soon as rates drop back down to get their home refinanced. 

Keeping our focus on transparency

At Homes by Taber, our team is constantly committed to open communication with our current clients and potential homeowners. Buying a new construction home is an incredibly exciting moment in anyone’s life and we want you to be completely certain that you are making the right decision for yourself by having all of the information possible. With interest rates still on the rise, we know how difficult it can be to feel comfortable making a decision this big in your life, but our team of experts are here to help answer all of your questions throughout the process. 

If you’re truly hoping to move into your dream home within the next year, now might be the ideal time for you to sit down with a qualified lender and speak with them about your financial situation. Today’s market is changing at an unprecedented pace and we want to make sure that you have all of the information you need to make an informed decision for you. If you’re interested in staying up-to-date on all of our current and upcoming communities throughout the Oklahoma City and Tulsa areas, give us a call at (405) 984-1185 in OKC or (918) 393-4149 in Tulsa or fill out our online form to get in contact with a Taber representative today. 

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