Whether you are searching for the perfect starter home, moving up to your dream home or downsizing to a cozy vacation home, you need to keep a close watch on mortgage rates. Even a small change in prevailing interest rates could have a big impact on your monthly payment, and that could affect everything from how much home you can afford to how easy it is to make your mortgage payments.
One of the most important things to keep an eye on is the state of the overall economy. When the economy goes into a period of decline or enters a recession, central bankers often respond by lowering interest rates in an attempt to stimulate the economy and get things back on track. If the economy is weak, there is a good chance that interest rates in general, and mortgage interest rates in particular, will soon be falling as well.
Depending on your circumstances and the urgency of buying a home, it might be worth waiting a few months or even a year to buy your property. If the economy has just entered an official recession, chances are interest rates will start falling very soon. If you can put off your home purchase until they do, you could lower your monthly payments substantially and make the home you do buy more affordable. Conversely, you could use those falling interest rates to buy a bigger and more expensive home. That strategy could allow you to benefit handsomely when the economy recovers and housing prices to start to rise.
If the economy is on the mend, you can expect interest rates to rise eventually, although the exact timing can be notoriously difficult to guess. If you are shopping for a home in a rising economy, it is a good idea to lock in a low mortgage interest rate when you can. Interest rates will not stay low forever, and when they do start to go up they can rise sharply and quickly. You may not get much time to react, so the sooner you can lock in that low mortgage rate the better.
No matter what your forecast for mortgage interest rates, you will only qualify for the best rates if your credit score is in the top tier of borrowers. Your credit score and credit history play a vital role in all aspects of home shopping, from getting pre-qualified for a mortgage to landing the loan you need to buy the property of your dreams.
It is always a good idea to get a copy of your credit report and your numerical credit score before you start shopping for a home. Knowing where you stand ahead of time will make every part of the home buying experience – from finding the lowest mortgage rate to landing the perfect home – a lot easier and less stressful.