Buying or Selling a Home When Mortgage Interest Rates Are High

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During these days when mortgage interest rates are high and the future of refinance rates unpredictable, you may be wondering whether you should buy or sell a home—or wait until better economic times. It may surprise you to know that now could be a good time for either move.

Advantages of Selling Your Home When Interest Rates Are High

Higher interest rates today mean that fewer buyers are looking to buy. The current rate of 7 percent has added about $300 or more to the average mortgage payment. It has stopped many potential buyers from looking any further.

People with enough money to continue looking for another house are willing to pay more. Although there is less bidding, it is not unusual for buyers to make offers considerably higher than the list price.

It is a good thing, too, because the same amount of money will not be worth as much in the future if inflation continues to rise. Putting your home on the market now will help ensure that there are buyers. Waiting means prices rise even more—which makes the pool of buyers even smaller.

High interest rates will cause fewer buyers to view your home. You could lower your price to make it more affordable to more buyers, which GoBankingRates says it could attract more viewers. People looking for homes often set filters that enable them to see only those homes within their price range. More viewers looking at your home means a bidding war could start—and you may end up with more money than you are currently asking.

Advantages of Buying a Home When Interest Rates Are High

Fewer buyers still in the market for a new home means there is less competition. Investorjunkie says that fewer buyers mean that housing prices will likely come down because of it. Fewer buyers mean that houses are staying on the market longer, giving qualified buyers a larger selection.

The Federal  Reserve has raised interest rates higher to help curb rapidly rising inflation. It continues to say that more raises may be coming. If so, it means that you may be able to lock in a lower rate on a new mortgage now. If rates are lowered in a year or two, you can refinance.

The Return of Adjustable-Rate Mortgages (ARMs)

News from various mortgage companies has led some people to expect that mortgage interest rates will come back down before long. The expectation has encouraged many people—more than in the last 14 years—to get an adjustable-rate mortgage (ARM).

An ARM offers a lower interest rate than a fixed-rate mortgage—but only for the first five, seven, or 10 years. After that, the interest rate is reset based on the market. The buyer then pays the new rate for the remainder of the loan. The rate could go up, down, or stay nearly the same when it readjusts—there are no guarantees.

Rocket Mortgage says that this kind of mortgage enables people to get a bigger house because of the initial lower rate. What happens after the initial period, however, is unpredictable. It can be a considerable jump in the size of the adjusted mortgage payment—which could make your home no longer affordable. People now getting ARMs are hoping mortgage rates will go down soon, thereby enabling them to refinance and get a better deal.

A 2-1 Buydown

One tool that some homebuilders are currently using that is becoming more popular is called a 2-1 buydown. This method of financing helps attract homebuyers to purchase new homes.

In a 2-1 buydown, a seller offers to buy down the interest rate by 2 percent in the first year. It means that the buyer is only paying 5 percent interest in the first year on a 7 percent interest rate. In the second year, the seller pays 1 percent of the interest rate and the buyer pays 6 percent. After the second year, the buyer is fully responsible for the mortgage payment.

One reason builders offer this option, says Peter Idziak, a senior associate at the law firm Polunsky Beitel Green, is because it is cheaper than reducing the price outright. He also says that this kind of option may not be readily available to the public in many places.

NBCNews reported that one Nashville-based realtor, Hagan Stone, makes a rather unusual promise to people thinking about getting an ARM. He promises potential buyers that they can get a free refinance within three years if the home mortgage interest rates come down.

Buyers Need to Calculate What They Can Afford

Before looking at houses, it is a good idea to find out what you can afford. Mortgage interest rates have doubled in the last two years—going from around 2.9 percent to 7 percent. This makes mortgage payments much higher—and out of range for most people.

The Washington Post mentions that the difference between the two interest rates is $1,100 per month on a 30-year fixed-rate mortgage for a $600,000 home. It makes the payment go from $2,500 to $3,600.

Buyers also need to think about what happens if interest rates do not go back down when expected. If they have an ARM, will they be able to afford it? When buying your home, you could buy points to lower your monthly payment, but if you do not stay in the house for several years, you may be unable to recoup the cost.

With the right planning, now could be a good time to either buy or sell a home. Mortgage interest rates are apt to remain high for a while, but folks with more money are looking to buy homes now. That likely means your home could sell even faster.

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