Mortgage rates are at their highest in 20 years. But here’s why you should buy a house anyway
It’s no secret that mortgage rates have become expensive this year. While it was possible to sign a 30-year mortgage at less than 3% last year, in 2022, this option has disappeared. In fact, mortgage rates have recently topped the 7% mark, according to Freddie Mac. And now mortgage borrowers are looking at their most expensive rates since 2002.
As such, you would think it would be a very bad time to buy a house. But it might make sense to go ahead with homeownership plans, even if it means paying a lot more to finance your own home.
Why you shouldn’t give up home ownership
Taking out a mortgage today could cost you a lot more than last year. And unfortunately, even if you are a prospective borrower with a good credit score, you could still end up with a higher rate on a mortgage than you would like. Add to that the fact that home prices are still rising, and it’s easy to see why buyers may be inclined to run the other way.
But don’t forget that there are financial advantages to owning a home rather than renting one. When you own a home, you get the equity in an asset that could gain a lot in value over time. And the sooner you start paying for a house, the sooner you can start building that capital.
Plus, renting a house might be preventing you from doing certain things you want to do, like adopting a giant dog or painting your walls bright blue. And if so, the sooner you become an owner, the sooner you can make the decisions.
Now you might be thinking, “Wouldn’t I be setting myself up for a financial nightmare if I buy a house today?” Not necessarily.
If you stick to a home you can afford given today’s mortgage rates, you can avoid a scenario where paying off your mortgage is a struggle. Typically, your monthly housing costs, including your mortgage payment, property taxes and home insurance, must not exceed 30% of your net salary. So as long as you stick to that limit, you should be in a decent position to go ahead with buying a home, even with a higher interest rate.
You are not automatically stuck with the mortgage rate you lock in
Mortgage rates may be high today, but they could go down over time. And once that happens, you may be in a position where you can refinance your mortgage and reduce your housing costs in the process.
Many people refinanced their mortgages in the second half of 2020, when borrowing rates fell to record lows. And some of those people may have been paying a higher rate for years. So that’s something to keep in mind when considering signing up for a 7% mortgage. It might not be the ideal interest rate to start with, but you won’t necessarily be stuck with it for 30 years either.
Our pick for the best mortgage lender of 2022
Mortgage rates are at their highest level in years and should continue to rise. It’s more important than ever to check your rates with multiple lenders to get the best possible rate while minimizing fees. Even a small difference in your rate could reduce your monthly payment by hundreds.
This is where Best Mortgage Between.
You can get pre-approved in as little as 3 minutes, without a credit check, and lock in your rate at any time. Another plus? They do not charge origination or lender fees (which can reach 2% of the loan amount for some lenders).
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