Interest rates are the highest they’ve been for some time. Understanding the benefits and drawbacks of buying a home at current market rates can help you make the right decision.
Chris Wise
While elevated mortgage interest rates aren’t preferable for homebuyers, the current environment shouldn’t be considered prohibitive, either. There are benefits—and certain scenarios—that mean buying a home when rates are high is still a smart move.
Here’s a look at when it’s a good time to apply for that mortgage, and when continuing to rent would be best.
Pros of Buying Now
A primary advantage of home ownership is the chance to build equity. As you pay down your mortgage, you gain equity in a property that is likely to appreciate over time. That can be a significant financial benefit as the value of your home—and entire property—increases.
You’ll also avoid paying a higher price to own a home in the future. When interest rates drop, as expected, housing prices will nevertheless increase as more buyers enter the market and push demand. By making the decision to purchase a home now, you gain the advantage of entering the housing market before prices escalate further, and you’ll potentially save money in the long term.
Stability is another positive aspect of home ownership. With a fixed-rate mortgage, monthly payments stay consistent for years, and you’re protected from the unpredictable and often large monthly payment increases that affect renters when their lease is up. Taxes and insurance costs might change over time, but those types of payments are typically more manageable and predictable than rent increases.
The personalization that comes with home ownership is also very attractive. Renting usually comes with a list of restrictions, such as not being able to paint the walls, have pets, or modify the space to your liking. When you own a home, those restrictions are removed and you can enhance your living space—your home—as you see fit. That type of personalization adds an intrinsic value that, while not financial, might be considered priceless.
The aspect of personalization extends to the sense of community, pride, and belonging that homeowners can enjoy. By being an established part of a neighborhood, you get the opportunity to enjoy social interactions like block parties and other local events that might not be available when renting.
If it’s legal in your municipality, as a homeowner you can also take advantage of accessory dwelling units (ADUs) and generate additional income by renting out space on your property. This also extends to using rental services like Airbnb and Vrbo, which can provide extra income to help support your mortgage payments.
Finally, remember that interest rates are cyclical. When rates drop in the future, you can refinance your mortgage, potentially reduce your monthly payments, and mitigate some of the higher costs of home ownership that you incurred when you first made your purchase.
Cons of Buying Now
Along with higher interest rates, one of the most obvious negative aspects of buying a home in the current market is that home prices are high and the market is competitive. Your budget might be stretched further than you’d like as multiple offers come in on homes and asking prices are exceeded. The steep prices mean that you might not be able to purchase in your preferred location or neighborhood. With the accompanying higher monthly payments, your options are limited, and you might be forced to compromise in your quest for the perfect home.
Homeownership also comes with the responsibility of maintenance and upkeep. Unexpected repairs should be expected, along with the expense that comes with them. First-time buyers stretched to the limit by high prices and mortgage payments can find themselves in difficult situations when problems arise and there are no emergency funds to cover an unexpected cost. And beyond the high sticker price and the monthly payments, when purchasing a home, the down payment, closing costs, escrow requirements for property taxes and insurance, and more can add up quickly.
Once you own your home, you’re also tied to that location. Selling your home can be a potentially arduous task with its own set of fees and commissions. If the need to relocate quickly comes up, it’s often easier to pull up stakes and find a new place if you’re renting.
The decision to buy a home now or wait for lower interest rates depends on multiple factors. If you discover your dream home, can afford the mortgage, and are able to budget for unexpected expenses, becoming a homeowner now may be the right choice. Just be sure to fully understand and consider your current financial situation and potential future situation before making a big move.
At Salal, we pride ourselves on providing a level of service that large national lenders simply cannot provide. Reach out today to meet with one of our lending professionals to talk about your options and make a plan.
