Why you should lock in a mortgage rate today
With inflation still persistent, if cooled from recent highs, and interest rates significantly elevated from 2020 lows, many prospective home buyers have decided to sit on the sidelines. With interest rates for a 30-year mortgage at 6.88% as of July 24 and 15-year mortgages not much lower at 6.30%, the appeal of buying a new home has diminished.
Historically, however, today's mortgage and mortgage refinance interest rates aren't exceptionally high. And if buyers want to purchase a home currently, they may still be best served by acting quickly and locking in today's rates now. That's because the rate they could get next week or next month could be even higher.
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Why you should lock in a mortgage rate today
The mortgage rates of July 2023 are not what they were in July 2022, and they're certainly not what they were in July 2021. But that doesn't mean that it's not worth securing a mortgage loan now, anyway. Many Americans will need to increase the space they have or downsize and reduce costs, either of which may require moving to a new home.
But the primary reason why potential buyers may want to act now is simple: The Federal Reserve is expected to raise interest rates again when they meet later this week. The current benchmark rate is between 5% and 5.25%. Most experts expect that will go slightly higher, with a range of 5.25% to 5.50% not unlikely.
If you're a buyer who knows they need to move and will have to do so in the near future, it may make sense to apply for a mortgage today. It's not the rate you'll need to keep forever or even for the next few years, but, barring an adjustable-rate mortgage, it may be the lowest you can get for the time being.
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Other considerations
The looming Fed rate hike, however, is only one (albeit major) component to take into account. Mortgage interest rates can always be refinanced in the future. And that future may not be far off. If the Fed continues to see inflation drop, then they may pause any additional rate hikes after July (a June pause in increases just passed). And rates could even start to fall toward the end of the year or in 2024. So a higher than usual rate now may only be temporary, although no one knows for sure where rates are headed in the next 12 to 18 months.
Housing inventory is also a factor. In major parts of the country, the available inventory is low and the buyers waiting in the wings are multiple. If you live in one of these parts — and ultimately find your dream house — it may be worth buying, even at the elevated interest rate, versus waiting for the rates to drop only to see the house you love disappear from the market.
"Buyers should focus on their need for housing and the availability of homes in their desired location. If they find a house that suits their needs, they should not hesitate due to high-interest rates," David A. Krebs, a licensed mortgage broker at Dak Mortgage, recently told CBS News.
Learn more about your mortgage purchase options here now.
The bottom line
Acting aggressively to secure an interest rate lower than 7% may not seem like anyone's ideal scenario but, unfortunately, it's a realistic one in today's elevated rate environment. So if you definitively need to buy a new home and want to do your best to get a rate as low as possible, it may be worth being proactive now before the Fed sends rates headed upward yet again. By locking in a mortgage rate today you can likely get a lower rate than if you had waited for August — and you can always refinance when rates inevitably drop in the future.
