The Impacts of Mortgage Rate Hike in the Housing Market

The mortgage rates took a significant jump after the U.S. presidential election. Donald Trump’s victory and his pro-growth agenda have likely affected the borrowing costs, resulting in some fluctuation in the country’s housing market.

Since the presidential election earlier in November 2016, the mortgage rate went up from 3.73% to 4.01% in a week, which was the highest increase in a week in more than three years.

As the rates are unlikely to drop anytime soon, this is a wake-up call for both the buyers and homeowners. What could be the possible impacts of the mortgage rate hike on them? Let’s take a look:

Implications for the Buyers and Homeowners

Refinance the Mortgage Payment. The mortgage rates are still within hand’s reach, but waiting too long may push it too far to keep up with. So, if you’re a homeowner and thinking of refinancing your mortgage for a lower rate, do it now before it jumps further.

Lock the Rate. If you’ve applied for a home buying loan, it’s time for you to lock the rate. With the increased mortgage rates, the criteria for qualifying for the pre-approval will be gradually tighter. So, you should lock the rate now when the rates are still feasible.

Refinance the HELOC. A spike in the rates of HELOC will follow the mortgage rate hikes. So, if you have an HELOC second mortgage, it’s the time to refinance it. Talk to your loan advisor to determine a fixed rate second mortgage to avoid paying a higher rate.

Refresh the Pre-Approval. The debt to income ratio, the yardstick used for giving pre-approval to the future homebuyers, is going to increase with the rise in mortgage rates. So, if you’ve already been pre-approved, ask your lender to recalculate it to see if you still qualify for your target home price.

Stable Home Prices. Rising mortgage rates aren’t going to increase the home prices, at least not so quickly. The inflation in the median prices of existing homes will be minimal in 2017.

On the contrary, there’s a good chance that home prices will go down next year. Since the end of 2008, housing affordability has been hovering near hitting the lowest. In fact, 1% increase in rates is likely to take 30% of buyers out of the market. So, people will put fewer offers if the rates rise further, forcing the sellers to reduce the market price.

Warning for the First-Time Buyers. With an already-low housing affordability, a continuous upsurge in borrowing costs could reduce the number of first-time purchases. A significant number of buyers have already been stretching just to begin the process. So, if the market continues in this direction, it will price out a large pool of buyers.

So, if you are a homeowner or plan to buy one soon, refinance your mortgage rates or recalculate your budget to keep up with the market conditions.