What You Should Know About Rising Mortgage Rates

August 22, 2021

What should a borrower do when they want to buy or refinance a primary residence but interest rates are on the rise? No matter what loan amount you seek, or how many discount points you might think about buying, the rising rate issue is one that creates concern for some applicants.

What should you do if you need to lower your monthly payment, get out of an adjustable-rate mortgage into a fixed-rate loan, or simply purchase a new home? 

Yes, your credit scores affect the interest rate you are offered, and yes getting a shorter loan term such as a 15-year mortgage can save you money on mortgage interest rate charges over the lifetime of the loan. But when rates move higher, do you save the money you were going to spend on closing costs and bide your time?

Home Loan Interest Rates Are Subject to Change

Mortgage rates adjust frequently. Daily, even multiple times in a day depending on circumstances. If you watch the financial news, you can get hints as to what rates might be doing in the short term. 

There are trends you can watch--in general,  what is thought to be good for the economy can translate into higher mortgage rates. Issues that mean bad news for the economy can mean good news for mortgage loan interest rates. 

It's not an across-the-board cause-and-effect relationship (mortgage rates can and often do behave paradoxically) but it is one indicator you can pay attention to and be better prepared in the event that rates do change.

Need A Lower Rate? Or a More Predictable One?

If you seek an FHA refinance loan to get out of an adjustable-rate mortgage, compare the rates your lender could offer you on a refi loan versus what you are paying now. Ask the lender if the move makes sense--what would your loan officer do if it were their money on the table instead of yours?

Applicants who might be interested in a fixed-rate mortgage that exceeds the loan limits, known in the industry as a "Jumbo loan", may feel that in a rising interest rate environment,  that could translate into a deal that isn’t quite as when rates are lower.

But some borrowers choose to accept the higher rate knowing that they plan to refinance later when there are lower interest rates. That is one reason why loans backed by the Federal Housing Administration are popular with some applicants--the rates charged may be typically lower than certain conventional loan equivalents.

You may want to look at your savings, the amount you want to put down plus any money you have saved for fees and closing costs and contemplate the rates as they are now and then choose. Is now the best time to commit? 

What Would Your Loan Officer Do?

Here is another place where you should ask your loan officer if your plans for a 15-year or 30-year mortgage are going to be complicated by a higher rate. What would your loan officer do? Even if you're dealing with an online lender, it's good to get a second opinion through a chat gateway or email.

Rising mortgage rates are part of the marketplace. They are not uncommon. That said, in cases where there is a sustained upward trend might be an indicator that it could be smart to wait to apply for FHA loans, conventional mortgages, etc.

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