With mortgage rates increasing again, how do these higher interest rates affect homeowners looking to buy or sell their home? Read on to learn more.
If you’ve been keeping up with current events, you know that rising interest rates have been a big part of the news cycle. You may also be wondering what this means for your home. As of June 2022, U.S. home equity has hit the highest level on record... but for many homeowners, current refinancing rates stand in the way of that equity.
With the mortgage rates increasing, you might be finding yourself in a similar situation. You may have several questions on your mind: Will interest rate hikes affect your property value? Can you tap into your property value without taking out a loan? If you intend to sell your home, do increased rates mean that you won’t get as much money for your house, or that it will languish on the market?
These are common questions for homeowners. Due in large part to the pandemic, interest rates have been at historic lows for some time. As rates are surging once again, many people are carefully monitoring the situation. Here’s what the current mortgage interest rates could mean for your home.
For much of the last decade, refinancing has been the primary method of tapping into your home equity, carrying both the benefit of accessing cash and lowering previous interest rates. However, with the exit of low rates and the entrance of rates climbing into and past the 6% range for many Americans, refinancing has become a more difficult proposition for those looking to access inexpensive capital.
With this said, refinancing does have some benefits. For one, it allows you to keep ownership of your home at a higher interest rate. This may appeal to some wanting to stay in the home long term, allowing them to ride out the up-and-down fluctuations of an uncertain real estate market.
In general, higher interest rates mean decreased buying power due to higher monthly loan payments. A buyer who can afford to spend $500,000 on a home when interest rates are at 3% may only be able to spend $450,000 when rates are at 5%. The extra money must be put aside to cover the monthly interest.
If home prices remain steady, buyers will have fewer options to choose from. Or they may get a smaller house for their money. Instead of looking for a 4 bedroom option, a buyer may decide to settle for a 3 bedroom home.
On the other end, sellers may find that there are fewer potential home buyers at all price levels during periods of higher interest rates. Someone who hoped to list their home at $500,000 might have to cut the home price to appeal to the same group of home buyers.
However, the rules of supply and demand still apply. You may be protected against a drop in property value if you have a desirable house in a tighter housing market.
Another factor to consider: uncertainty can breed indecision. During a period of rising interest rates, your house may sit on the market for a longer time, leading to increased financial stress if you are depending on the income from a home sale to fund a medical procedure, a family member’s education, or other major investments.
Regardless of your reasons for wanting to unlock home equity, it is important to weigh the pros and cons of the options available to you, especially at a time when mortgage interest rates are climbing. Understanding these choices will allow you to identify the one that will best set you and your family up for success in the years to come.
At Truehold, we're committed to helping people access their home equity without taking on debt. Our sell and stay transaction is a debt-free unlock solution in which you agree to sell your home and continue to live in it as a renter.
This option is great for someone who may want to…
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