Mortgage Rates Might Rise Next Year: What to Do Now
Most experts expect mortgage rates to rise next year. It’s a combination of a few factors, including inflation, Federal Reserve policy, and more.
But according to the pros, we should see rates in the high 3% range by the end of 2022.
Fortunately, we still have plenty of time before we get to that point — and to prepare:
Do you want to make sure you’re ready for those higher mortgage rates? Here’s what you’ll want to do now:
For potential homebuyers
If you’ve got buying a new house (or a move-up home or second property) on your radar, then interest rates should be top of mind. For one, higher rates mean higher payments — as well as more long-term costs.
What’s worse? They can also eat into your buying power. A recent analysis from mortgage insurance First American shows that home buying power will fall by about $49,000 for the average buyer if mortgage rates hit 3.7% — just what the Mortgage Bankers Association expects by the third quarter of next year.
This all means that time is of the essence for hopeful homebuyers. If it’s possible, you should consider buying sooner than later, as it could save you significantly on interest. (A nice bonus? Competition usually slows around the holidays, so you may be able to get a better deal too).
Steps to take as a homebuyer
- Get prequalified with a mortgage lender. This will give you an idea of what rate you might qualify for and how much you’d stand to borrow. You can also ask them to run the numbers on a slightly higher rate to see the difference. Is it worth buying now to save in the long run?
- Shop around. Getting quotes from at least a few different lenders can help you qualify for the lowest mortgage rates possible. You might also save on fees this way.
- Find a good agent. Start working with an agent if you think you might move up your buying timeline. They can help you set up alerts for homes in your price range and ideal location. They can also advise you on the best times to buy in your market.
- Prep for your mortgage application. Go ahead and get all your documents in order, so you can act quickly as soon as you find a house. You’ll need paystubs, bank account statements, tax returns, and W-2s. The exact documentation will vary, but your loan officer can give you more specific guidance.
For existing homeowners
If you already have a home and a mortgage, the first thing you’ll want to do is assess. What’s your current rate? If it’s higher than today’s historically low rates, it might make sense to consider refinancing before mortgage rates start to rise.
Doing so could mean a lower rate and a lower monthly payment. You also may be able to refinance into a shorter-term loan, keep a similar payment, and pay back your loan on a faster timeline.
You should also take a look at your other debts. Do you have lots of credit card debt or a high-interest personal loan? If so, a cash-out refinance could help you consolidate those debts and reduce the interest you pay on them in the long haul.
Steps to take as a homeowner
- Get familiar with your current mortgage loan’s terms. What’s your rate and current balance? How long is left on the loan, and when will it be paid off? This can help you gauge how your loan compares to what’s currently being offered.
- Take stock of your debts. Have a good big-picture idea of your debt situation. Know the rates on your credit cards, car loans, personal loans, and other debts, as well as the payments, terms, and timelines of those. Understanding this can help you gauge whether refinancing may save you money in the long haul.
- Apply for prequalification with a mortgage lender. This doesn’t require a hard credit check and can give you a sense of what mortgage rates and terms you might be eligible for if you opted to refinance. You can ask the lender to run a few different scenarios, too (maybe a 15-year loan instead of a 30-year one, for example.) Then compare the long-term interest costs, payments, rates, and other details to your current loan.
- Get your documentation in order. If you think you may refinance, start gathering your financial documents. This can help the process go smoothly and more efficiently (so you don’t miss out on today’s historically low rates).
See if you qualify for a lower mortgage rate now
Ready to take advantage of current mortgage rates before they start to rise? Get in touch with an Embrace Home Loans office in your area today.