Interest helps your wealth grow and it can also keep you in a rut. Without compound interest, assets like your 401k or life insurance policy couldn’t grow exponentially, but it’s also the thing that’s responsible for the rise in gas prices and the overall inflation rate we’ve been seeing lately. You can make as many responsible choices as you can within your financial life and the interest rate will still be a venerable foe and a variable that’s forever out of your control. So, what do you do with this information? Throw your hands in the air and cower? Stay on the sidelines waiting for the perfect moment or right time to invest? I hope not.
Do not become obsessed with every 1/8 % of movement in the markets. Understand that today’s bonds are being moved by a very complex combination of labor, geopolitical, and monetary factors. None of these things are in your control. Do not worry over the things you can not change, and instead refocus on why you were buying to begin with, and hold the course if your reasons are still sound.
You can only control that which is actually within your control, so to stay abreast of the market and check the interest rates in a non-obsessive way, I’d advise you to have a loan package in process with at least one lender, and ask for daily updates from them on the market moves. You don’t check the rates – you ask your lender what’s going on. It’ll save you a very big headache. Within interest rates, there are so many factors that complicate it and influence which direction it’s flowing, so stay reasonable with your expectations.
Patience has never been an easy thing to come by in this cultural climate. In an alternate world where a perfect interest rate exists and it will show up within a predictable time table, it’d be advisable to utilize your patience to wait it out. Thankfully, we don’t live in that world and waiting for the tides to change won’t wolf anything. It will only add to the stress you are feeling over the process in general.
Instead, buy with confidence that rates in general are very good, and instead look to refinance in a few years, or if you are priced out of the market, wait to buy a few years from now, or look to house hack if you are afraid to hold off ownership. Do not pay points or fees for par rates. Instead look for the rates at par with no casts. I believe within three years people will have an opportunity to refinance back into a lower cost product.
Currently, with the interest rate we currently have for mortgages, I believe if you look at the inversion of the 5 year vs the 10 year, the bond market is telling us that the current environment is a temporary blip in the market. Short term rates being higher indicates that the market believes this will self correct, and that these current rates will likely be refinanced within the next 5 years. This is good news! Refinancing and otherwise adding improvements to your home should be a natural part of homeownership. You’ll reap the benefits of a lower interest rate later, so don’t hold off on owning property now.
Now, if you’re in the middle of negotiating a mortgage and the rates rise, that is not uncommon. If you were priced to perfection and maxing out your purchasing power then you will want to lock your rate rather than risk losing your house. So, be specific with what you want, target your properties wisely, and try to close as soon as possible.
I believe the inflation numbers that peaked this summer will precede a progresive fall off during the last quarter of this year as demand wanes over the non-peak buying season. This will be further enhanced if we show continued improvements in the supply chain, labor markets, and a resolution in the Ukraine. Like I said, there are several other contributing factors for the interest rate.
All in all, what feels like an impossible obstacle when it comes to buying a home is not forever, it’s just for now. Everything comes in waves, cycles, and trends, and interest is just another one of those things. You just have to keep on going.
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