As interest rates and home prices continue their upward trajectory, prospective buyers have become hesitant to enter the market – hoping they might get lucky and catch an opportunity when things slow down so they can safely jump aboard.
Buy house or wait till the rates go down? Here are a few reasons why buying now may make more sense than waiting for mortgage rates to decrease.
- You Can Still Afford It
Mortgages are essential components of homeownership for most borrowers who do not possess hundreds of thousands of dollars to buy an entire home outright. Lenders determine how much of a mortgage a borrower can afford by using two main criteria: gross debt service ratio (GDS) ratio and credit score. By improving both metrics and showing financial health, borrowers may qualify for more favorable loan rates.
Though saving for a down payment may seem daunting, you can significantly shorten the time required by creating a savings plan and taking advantage of windfalls like tax refunds or inheritance. Furthermore, with the Bank of Canada expected to put its rate-hike cycle on hold soon, current mortgage rates are lower than they were last summer.
And finally, you should always compare mortgage rates in order to select the ideal option for you – just remember to include discount points when doing this so you are making apples-to-apples comparisons.
- You’ll Build Equity
No one disputes that mortgage rates are currently high, yet that shouldn’t deter potential buyers from becoming homeowners if they can financially make the commitment. Remember, mortgage rates have historically been much higher.
Mortgage rate declines will cause demand for housing to increase and contribute to rising home prices.
As soon as you purchase a home, equity starts building immediately – this difference between what is owed on your mortgage and its true worth is your equity. Over time, if extra cash is needed you could tap into this equity; but always be wary about tapping it without first consulting an expert real estate professional or making a plan first.
- You’ll Be More Stable
Many believe waiting for mortgage rates to fall is wise, but this could prove disastrous. When interest rates do finally drop, buyers who had been hoping to take advantage of lower rates will flood into the market at once and prices may actually increase instead of decrease.
Before worrying about whether mortgage rates will fall, it would be prudent to focus on your personal financial situation and goals first. Take this time to ensure you have an outstanding credit profile as well as savings reserves to cover both down payments and closing costs.
If you are financially prepared and have found the home of your dreams, now may be an opportune time to purchase it. Not only can you save money with homeownership, but the security that comes from homeownership allows for lower mortgage rates over time – should rates ever return – you could refinance into an more affordable mortgage which gives you both low payments as well as increased property value!
- You’ll Be Ready for the Future
Ideally, when mortgage rates do drop, you’ll be prepared for the next stage in your housing journey. With excellent credit and enough savings in place for any unexpected expenses that arise.
Waiting too long could make homeownership unaffordable and costs may continue to rise until homeownership becomes financially inaccessible again.
Though it can be tempting to count on future interest rate decreases, experts advise focusing more on personal goals and financial readiness for homebuying than trying to time the market perfectly. No one can predict when home prices or mortgage rates will drop; what matters most is being ready when that momentous occasion arrives.