Increasing Mortgage Rates May Have Some Positives

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Filed under: Market Comentary

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Even though interest rates have been rising slightly, it isn’t necessarily bad news.   I’ve always held this opinion and so do a number of industry experts.  According to a recent article from Gina Pogol from The Mortgage Reports, increasing rates might even help someone currently in the market to buy. Here is a synopsis of Pogol’s article outlining five possible aspects regarding the rising rates.

• Increasing Interest Rates Equals Economic Improvement

An improving economy means more consumer activity. Pogol states that two-thirds of the US economy is based on consumer spending and that as spending increases it equals more jobs, high wages, and more competition for employers.

• Investments Pay Off

Current stock market investors are earning excellent returns. The Dow Jones Industrial Average set records recently, topping 20,000 on January 25. This may mean that you could hit your savings goal sooner if your down payment funds are invested in stocks and/or mutual funds. In addition, you could also find yourself earning higher wages as competition for employees “heats up.”

• Increasing Interest Rates Get People “Off the Fence”

Sellers are concerned with rising rates too and it may motivate them!  If you are currently negotiating a home purchase, the seller may be willing to do whatever it takes to close the deal.

Interestingly, even though there was a jump in mortgage rates and sales of existing houses dropped 2.8%, there is no proven correlation between increasing interest rates and falling home prices in the long run. When rising rates are part of an overall economic improvement, housing prices are “pulled along with everything else.”

More people working usually means more money to spend, which makes more competition for houses.

• Increasing Interest Rates Make Government Loans a Better Deal

FHA, VA, and USDA backed mortgages have an advantage with an increasing rate environment. They are assumable under their original loan. What this means is that a home buyer can “take over” the seller’s existing mortgage as long as he or she qualifies for financing.

Pogol says that you might be able to assume someone else’s government-backed loan at a below-market rate.  This doesn’t happen to often these days, but it is a possibility to consider.

If you have any questions about the mortgage industry or a specific situation, feel free to give me a call or shoot me an email.

Source: http://themortgagereports.com/25134/5-reasons-rising-interest-rates-are-good

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