Managing Mortgage Rates: How to Factor for Long-Term Uncertainty

Managing Mortgage Rates: How to Factor for Long-Term Uncertainty

For many would-be homebuyers, high-interest rates hold them back from the real estate market. After years of near-record lows, interest rates are now hovering near 8% for a 30-year mortgage.

Interest rates drive up your monthly mortgage payment. They directly impact whether you can afford a home or not.

With rates playing an oversized role in the market, it is essential to control the variables. Read on for a comprehensive guide to mortgage rates. Explore topics such as how to negotiate mortgage rates and how monetary policy affects the market.

Why Are Interest Rates High?

Borrowers have gotten used to the low-interest rates of the past decade-plus. Historically, today's interest rates are not that high.

In 1981, interest rates reached 19% as the U.S. Federal Reserve sought to eliminate inflation. Throughout the 1990s and 2000s, average interest rates on a 30-year mortgage were higher than they are today.

In the late 2000s, the housing market collapsed. The Fed adjusted its monetary policy to inject capital into the market. They lowered interest rates to near zero basis points.

This led to the sub-5% interest rates that are common in today's mortgage industry. Homeowners got used to these rates, however, they are not the historical precedent.

What Are Interest Rates Based On?

Besides Fed monetary policy, there are a few other factors that affect interest rates. The loan term drives interest rates. Longer mortgages typically have a higher rate.

The loan type is another factor. Variable and fixed-rate loans have different interest rates. For variable-rate loans, the rate changes based on market conditions.

Property type has an impact as well. The interest rate on an investment property may be more than a primary residence.

An applicant's credit score has a significant impact. Lenders prefer to issue mortgages to applicants who pay on time and have a strong credit history. Lenders do not share the same enthusiasm to lend to borrowers without creditworthiness.

Can You Negotiate Mortgage Rates?

Negotiating interest rates on a mortgage is not easy. Tennessee lenders do not have a lot of wiggle room to reduce interest rates.

Shopping around for the best interest rate is a good strategy. Here, you contact traditional banks, mortgage brokers, and other lenders to find the best rate.

The best way to reduce your interest rate is by cleaning up your credit score before applying. Another successful strategy is to purchase discount points.

This is a tactic in which you pre-pay for interest at loan inception. A lower interest rate is the byproduct of your proactive approach.

Cash is king and the more money you put down on a new home the better. Less principal on the loan reduces your finance charges regardless of interest rate.

Your Guide to Interest Rates in the Current Housing Market

Many borrowers fear the current housing market and the higher-than-normal interest rates. However, interest rates are not historically high compared to previous decades.

The good news is that experts believe interest rates will decline in 2024. Many borrowers will buy a new home and refinance their mortgage when interest rates become more favorable.

A property management company can help you navigate these difficult times. If you need advice on mortgage rates, contact us today at PMI Middle TN to speak with a professional.