Mortgage rates in the past week just hit the highest level since 2011. If you look at the average 30-year-fixed-rate, you’ll see that it rosed to 4.61% from 4.55%.
What is a Mortgage Rate?
It’s the rate of interest charged by a mortgage lender. If you’re a home buyer and you’re looking to finance a new home purchase with a mortgage loan, one of your primary concerns should be to obtain the lower mortgage rate possible. Therefore saving money in interests paid to the lender.
What does a higher mortgage rate for everyone means?
It will basically reduce house-buying power for investors. This will help to control market prices in different regions that are in bubble territory. If the money available for houses is getting expensive, fewer people will be keen to invest.
On the other hand, it could be useful for those who want to rent: if borrowing money to buy makes the monthly payments to the lender unreasonable, maybe renting could be a better option.
Buy or Rent?
For some is one of the most difficult questions to answer: Should I invest in a house now or rent? Factors that you should consider before making a decision.
Having the best mortgage rate available (below the average) should be an indication that lenders see the investor as a lower risk when compared with others. The opposite (above average) will indicate that lenders see you as a bigger risk when compared with others.
The lower the rate, more money you will save throughout the time of your loan.
Current cash flow
Cash flow from different sources such as work income, investments, and so on will leave you in a better position to invest in real estate. Signing a deal for 30 or 40 years is a big and long commitment that should be safely protected by having a safety net (multiple sources of income + savings).
If property values are skyrocketing and making no sense, one should be prepared to postpone the investment. There are a lot of regions – worldwide – where we’re in bubble territory. Some signs that you should look for to identify a Real Estate Bubble:
- Home prices are rising faster than salaries
- Foreign demand slows
- Too much leverage
How long do You Plan to Stay
If you’re planning to stay for a short period, the ‘renting‘ option could be the better one, since you may prefer to not enter into a long-term commitment. Conversely having the expectation to stay for longer will probably indicate that investing in a house will be the natural option. Hard to state some recommendations because it really depends on the personal situation of the investor/buyer.
Again here it depends on the location where you want to invest. But generally speaking, there are a lot of considerations, such as:
- Property taxes
All these are hidden costs for buyers that rental prices will not reflect. So when comparing which is the better option, don’t forget to add all the costs up. Comparing apples to apples.
With a lot of regions in the world with high level of real estate prices, mortgage rates climbing, I would watch carefully the market and think slowly before making a decision to invest in a house. Even more, if it implies buying through a mortgage loan. High prices + high levels of mortgage rates coupled with a long-term commitment may be the recipe for a disaster.
On the other hand, if a great opportunity comes by, with a strong cash flow (+ savings for a rainy day), it may be worthwhile to invest as it is in any other time. I would only be more picky about opportunities in the near future.
And you reader? Do you think it’s a good time to invest in real estate going forward? Why or Why not?
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