Mortgage rates have soared the past few months leaving many buyers wondering, "how current mortgage rates will affect their home buying process." Ginger & Jessy break it down in simple terms.

In this episode of Give, Work, Play, we are going to take a look at where we have just come from, where we are right now, and what the future holds for interest rates. We’ll talk about the effects of inflation and give you some tips on buying a home.

How We Got Here

At the beginning of the year, interest rates were at historic lows in the 2-3% range. We were in la la land, a place that none of us could have ever imagined we would get to. Who would have thought a pandemic of all things would have gotten us there?

The pandemic lead to some of the lowest rates any of us have ever seen—which is not entirely sustainable. When it comes to lending money, it costs money to buy money and it costs money to lend money. There comes a point at which that's no longer feasible.

Right around October, we started to see some adjustments. After January 1, everyone got comfortable with flipping their calendar over to the new year. Since then, it has been an increasing trend.

Where We Are

It has been a great market and still is. Up until recently, we have still been at historical rates. The most important thing to understand is that what we are seeing is nothing to be afraid of. It is not permanent. While we are seeing rates increase, this is not a result of the Fed increasing the rate.

When you turn on the news and listen to the media or open a newspaper, it can be a little scary. You don't really know exactly what's happening except that everything's going to cost more. We are in a recession or are heading into one, interest rates are going up, and maybe you can't buy a house anymore. However, there’s more to the story—and we’ll explain.

All About Inflation

Inflation means that the cost of anything and everything is going up. We currently have an inflation rate that is at a 40-year high. Mortgage interest rates are tied to inflation, not the Fed. We are currently at about an 8.5% increase in inflation. Additionally, the rate of inflation in just a year's time is very compressed. We have seen a sharp increase, and so rates have followed.

The Fed increasing the rate is actually designed to help offset that. When the Feds increase the rate, it does not mean you are less likely to afford a mortgage. It also does not mean that buying a house in and of itself is going to be more expensive or less viable for you.

Interest Rates

At the beginning of the year, we were in the 2s and 3s for interest rates. Almost midway through the year, interest rates have increased about two percentage points. However, every loan profile is different, and there are so many factors in an interest rate.

While it is easy to see certain rates online, they may not actually be realistic. This is why we need to speak with our lending professionals so that we are in a position to understand exactly where we stand. There are ways to optimize and remove inefficiencies from your overall loan application to be in the best position to buy.

When buying a house, one of the first things I recommend to people is that they talk to a lender. They’re really going to give you the numbers that are for you. While you can hear all of the news and read everything in the paper, you need to know what it means to you as a potential buyer and what you can actually afford.

Where Are We Going?

One of the hard-hitting questions people want to know is where are we going? Everyone's going to want to know where interest rates are predicted to go and how long we are going to be in an increasing interest rate position.

First, take a deep breath. Think of that moderately uncomfortable feeling after Thanksgiving dinner, and that explains where we are. We are in an inflated economic environment—but it’s not permanent. Just like the way you feel after a good nap, a fresh mindset, and a little sweat on the peloton, we’ll start to feel better moving forward.

Of course, we are not out of that trend of increase yet in the mortgage interest rate market. It is likely to continue right alongside inflation. According to all the technical analysts, inflation should start to taper off somewhere around October. Surprisingly, inflation is going to be controlled by some of the Fed interest rates increasing.

Analyzing The Data

While it may seem scary, the Fed increases are actually working in our favor. There are all kinds of examples historically of how increasing the rate is designed to bring that inflation in check. Since interest rates are tied to inflation, what are these rates going to be when inflation starts to level out?

When looking at the technical data, it looks like interest rates might continue to climb. However, there will be some relief in the future. A mortgage should complement your financial strategy and is a way to build wealth for your family now and in the future. It is a legacy purchase, and if you wait too long, you’re going to miss out on that magic equity you could have otherwise had.

Interest rates—along with inflation—may level out in October. Once that inflation starts to taper off, the market will follow. It is probably not going to be instantaneous to the point that it is worth waiting to ride our current rates out, however. If you wait the 18-24 months for interest rates to get back into the 4s or 3s, you might be missing out on tens of thousands of dollars of wealth in the form of equity in your home.

Buying A Home Now

If you buy a house now, you're likely going to spend more on a property. We are still in an appreciating market, though it may not be quite as intense as it has been for the past two years. We are going to stabilize into a single-digit appreciation, which is healthy and sustainable. This is a reason why you should still consider buying.

There is still going to be an appreciation trend moving forward. If someone were to buy right now and they locked in their interest rate in the 5s, that interest rate may come down at some point. In a year or so, they can always refinance. If you're purchasing this summer, you will definitely be making a strategic move.

Remember, this is not a lifelong, 30-year commitment in most cases for most clients. This is a means to an end loan, a way to do something that is probably underrated in terms of the overall home buying process. It is also a way to create stability. If you're renting, you're paying your landlord’s mortgage. They have the ability to tell you what you're going to pay.

Creating Stability

This is not the case when you have a mortgage. You can create stability. In fact, if you buy in a higher interest rate market, you're almost building a cushion for yourself in the future if the rates come down. This means your payment will likely become lower in the future.

So create stability by locking in your housing payment. A 30-year fixed rate mortgage is not going to change. The payment itself, the principal, and the interest portion are not changing for the life of the loan. This is a way to get in and get on the leading edge of that equity curve and create some stability for your finances and your family.

You can then plan with your lending partner what that looks like in 12 to 18 months when those rates come back down.

Will The Bubble Pop?

When it comes to a housing bubble, we are not going to see a pop. This is based on several factors. There are a few reasons that this market is not going to crash. Number one is supply, or good old capitalism. Supply is low and the demand is very high.

Most importantly, the mortgage lending world is completely different than where it was in 2007 and 2008. There are so many more protections in place for all of us, and we are making really good choices. We’re also doing things like planning in advance, which will ensure that we are not setting ourselves up for anything other than success.

While there are more requirements for loans and things like credit scores have gone up, there are still a lot of options. There is also still some flexibility. By following the prevailing mortgage guideline, we are helping to ensure that our clients have the ability to repay their mortgages. It is a much safer environment for all involved because our goal is to help create stability and success for our clients.

We want little Johnny to be able to grow up in his bedroom and stay there forever. That's the goal.

Homebuyer Tips

If you're looking at becoming a buyer right now, there are two big tips we recommend. For one, you want to be prepared. While it sounds cliche, knowledge is power. The more you know about not only your finances but your future plans, the better position you are in.

Imagine walking into a home you want to buy. Instead of wondering if you can afford the kitchen, you feel confident in what your offer price could be, your cash position, your strategy, and more. So be prepared, and get as far away from that front door as possible. Speak with your lender, and consult with your team about what strategies are necessary for this market.

The second tip—which might sound a little bit like Pollyanna—is to just stay positive. Take the media and any other influences (including your family’s opinions) with a grain of salt. When you are prepared and have an understanding of your financial picture, it gives you the freedom to recognize that this is just short-term. Keep your wits about you and try to enjoy this process, because it is a great opportunity.

Talk To A Lender

The third tip is to definitely and without a doubt talk to a lender. Your lender is one of the first people you should be talking to in the process, especially when you're trying to figure out how much you can afford and what your payment is going to look like. It will also allow you to really get an understanding of what the market and the interest rate would look like for you.

Additionally, there are all different types of loan options—which we are going to talk about in another video. You want to make sure that you're also setting yourself up for success and for your future. One of the first places that it starts with is the lender. So call me or call the lender because, in tandem, the realtor and the lender work really closely together. We make sure that you're set up for success and building wealth in your future by owning a home.

We are Here To Help

I hope this information was helpful for you in understanding inflation, mortgage rates, and what the future holds for the market. If you have any questions, feel free to reach out to us or Jessy Printz.