The Calamity Of Your Mortgage Interest Rate Edging HigherMortgage interest rates trade every day, they go up, they go down, sometimes they only move sideways but they change. It is the way it is and it is the way it will be, so understanding how that impacts your personal mortgage repayment future, will help you digest whatever the financial markets throw at you.
Some perspective from my side of the equation; even though mortgage rates are no longer at the historical bottom they were at just a short while ago, they are still historically low. In fact, as recently as the dawn of the new millennium, mortgage rates were hovering around 8% and sub-5% rates have only been around for less than a decade. Absent any high interest rate frame of reference, a .25% increase might seem titanic to some, when in fact , historically speaking, maybe not so much.
First, some knowledge; a .25% increase in the interest rate for your $300,000, 30-year mortgage will cost you an additional $43.57/month. So if you could have locked in your interest rate at 4.00%, but you were hoping rates would go down and you waited, $43.57/month was the gamble. Calamitous maybe, but that is a function of the beholder’s perspective.
Mortgage consumers who remember high single digit interest rates in the 1990s and even some who can remember double digit interest rates as high as the teens back in the late 1980s, have a working frame of reference to temper the effects of interest rate movements. First time home buyers who have only ever known the historically low interest rate environment that has become our norm, do not.
I watch interest rates almost obsessively, as a boots-on-the-ground mortgage loan originator; it is an integral part of the job. I watch and absorb economic reports as they are released throughout the month and I see how the credit markets process this information. Sometimes it makes sense, sometimes it does not, and after 25 years of this, I am certain of one thing; interest rates change. Lock in early and get on with the business of your mortgage approval.