What Do 7% Mortgage Rates Mean for Homebuyers?

NEW YORK – The average rate on the standard 30-year fixed mortgage rose to 7.09%, according to Freddie Mac’s latest weekly survey. Some experts say that’s close to an expected high and predict that they’ll drop at least a bit by the end of the year.

But some expect rates to remain high for a longer time.

Don’t give up, be flexible

Financial advisers say homebuyers shouldn’t bet on future rates and try to time the market because no source can accurately predict what will happen. Instead of trying to bet on the direction of rates, potential homebuyers should focus on what they can control, such as their budgets and choice of property.

Get a foot in the door

Some discouraged buyers should stop looking for their “forever home” and start looking for their “get my foot in the door to start building equity” home.

As rates rise, potential buyers may need to adjust their price range downward, if they have not done so already. It also helps to be flexible and willing to make compromises, such as forgoing a third bathroom or buying outside of a preferred location, says Aniva Hinduja, general manager of home and mortgage at Credit Karma.

Two-step approach 

“Your house doesn’t have to be your ‘forever home,’”  adds financial adviser Brian Seay. He says buyers can settle for their best option now and plan to trade up later.

Buyers should also focus on the monthly payments. Financing a $440,000 home with a 20% down payment at a 7% mortgage rate would mean a monthly mortgage payment of approximately $2,300, while a 6% mortgage rate would save a buyer about $200 a month. Some buyers who initially balked at the idea of a 7% mortgage may realize the difference in their monthly payment compared with a 6% mortgage they also ignored because they thought it was too high.

Lock-in rate, buy now

If that 7% rate is manageable but, say, a 7.5% rate is not, it’s likely best to buy now, especially if they have a stay-in-place timeline of at least five years and an option to either move up or refinance sometime down the road.

_{Source: Wall Street Journal (08/16/23) Dagher, Veronica © Copyright 2023 INFORMATION INC., Bethesda, MD}