Looking to Buy? Now’s the Time to Lock In Your Mortgage

Published on: September 20, 2022

By John Dustman , Senior Vice President, Head of Mortgage Banking, Axos Bank , NMLS# 1392265

If you’ve put the brakes on your home purchase search, you’re not alone.

New home and existing home sales fell in July to 12.6%?and 5.9%? respectively. New home sales are now at their lowest level since January 2016. And for existing home sales, this is the sixth consecutive month of decreases.

This is largely attributable to the Fed’s recent efforts to curb inflation through its rate increases. While rising rates has yet to produce the desired outcome (reducing inflation back down to a 2% annual rate), it has had a material impact on mortgage rates and housing demand.

But this doesn’t mean you should stop your home search. In fact, economic indicators point to now being a good time to lock in a mortgage. Here are two reasons why.

1. Mortgage rates are certain to rise – and it could be by quite a bit.

Federal Reserve Chair Jerome Powell has confirmed the Fed plans to continue increasing interest rates and reducing the size of its balance sheet to combat inflation – even if the labor market weakens. With the Fed’s Open Market Committee (FOMC) scheduled to meet September 21, it’s highly likely the fed funds rate will increase again before October.

Generally, mortgage rates tend to move in the same direction as the fed funds rate, so it’s even more important to pay attention to potential rate movement when the U.S. inflation rate is elevated, like present. Mortgage rates don’t respond well to inflation until we see that inflation has been defeated. That hasn’t happened yet in the U.S., so you can expect to see mortgage rates continue to remain relatively high.

But just how much more can mortgage rates rise? Looking at history, the answer may be “quite a bit.”

The last time we saw inflation above 8% was in the 1980s. That’s the same decade when mortgage rates went into double digitals – going above 15% at one point. With current mortgage rates being well under the inflation rate, there’s a lot of room for rates to rise before we hit the height of this rate increase cycle.

So, while today’s rate is less than ideal when looking back to last year’s historic lows, it’s still a lot more affordable than where it may be by the end of the calendar year.

2. Rates don’t just affect your monthly payment – they can also alter your home search.

It’s easy to have tunnel vision when it comes to mortgage rates. But it’s important to remember they impact more than just your monthly payment.

As mortgage rates rise, talk with your loan officer so you understand how the fluctuations may impact your purchasing power. Higher rates may reduce your approved loan amount, require a larger down payment, or result in a revision of your home search parameters so you can start looking for a lower-priced home.

You want to love where you live. If your loan officer has indicated that increased rates will require you to lower your price range, it’s important to act now. You don’t want to commit to a house that doesn’t check all your boxes.

Real Estate Is a Long-Term Game

Interest rates and home prices change, but homeownership continues to be an attractive way to build wealth over time. If you plan to own your home for many years, then buying now can still be a profitable venture.

Eventually, rates will come down. When that happens, you may be able to refinance your mortgage to lower the rate and improve the terms of your loan, such as reducing your monthly payment, removing PMI, changing the repayment term, or locking in a fixed rate. If you’re interested in tracking this yourself, sign up for our free mortgage rate watch service. You can access it when you check today’s mortgage rates on our website.

If you work with the right lender, refinancing can be a quick, painless process that will keep you happy that you bought your house when you did.

Interested in locking in a mortgage? Visit AxosBank.com/Mortgage for a personalized mortgage rate quote or call 888-546-2634 for a mortgage consultation.?