Many financial experts believe that interest rates will go up in the future, so it may seem like now would be the perfect time to get your mortgage with an incredibly low rate. However, if you’re not prepared to handle higher interest rates in the future, getting your mortgage right now could be a huge mistake. Make sure you’re ready before you take out your mortgage loan!
The Reality of Interest Rates
With rates near record lows, is it finally time to purchase that new home you’ve been thinking about or refinance that higher interest rate loan you got back in 2009? There’s no denying it—now is a great time to take advantage of lower interest rates. However, if history has taught us anything, it’s that we shouldn’t expect rates will stay where they are forever. Rates rise and fall in cycles.
Things That Impact Interest Rates
As rates rise and fall, it’s important to understand why. There are several factors that can cause interest rates to spike: inflation; employment statistics; economic conditions around the world; inflationary pressures in energy and food prices (which tend to be more volatile than other goods); changes in international currency exchange rates; geopolitical concerns. There are also more immediate factors that can impact whether you decide to lock your loan rate or opt for an adjustable one: Your closing date may affect what kind of rate you qualify for. If there’s been a big increase in interest rates since you applied, it could make sense to go with an adjustable-rate mortgage if you plan on moving soon.
Understanding Fixed-Rate Mortgages
A fixed-rate mortgage locks in your interest rate for a set period of time. If interest rates go up, you won’t be able to take advantage of those increases, but if they go down, you’ll pay less per month. This can be great for people who want to budget and know exactly what their payment will be each month—or for those who think rates will rise and don’t want to lose out on future savings.
Why Everyone Should Consider A Fixed-Rate Mortgage
Fixed-rate mortgages offer some real advantages over adjustable-rate mortgages, including peace of mind. Plus, they can be more affordable in certain situations. If you’re planning on staying in your home for three years or less and can afford higher payments in early years of a loan, then consider an ARM. But if you’re thinking about putting down roots, don’t risk it. A fixed-rate mortgage is a way better choice than an ARM—even if you’ll pay slightly more each month for the privilege.