7% interest rate?!

[MrsCobraBubbles]

I'm on track to be buying a home in the new year, hopefully before my lease runs out in March. The current interest rate is around 7% and rising! I hate the thought of buying a house with the plan to refinance ASAP, but I don't really know what else to do. Does anyone have any good stories about refinancing? Or can you share your experience with buying when the interest rates are so inflated? When my ex husband and I bought our house the interest rate was under 4% so I'm feeling some sticker shock!!! And I read an article recently that was predicting we might see 10% interest rates!! I really want to follow through with my plan to buy but this kind of has me scared and ready to ask my landlord for another lease.

 

[Southernmiss]

Many of us bought at times when rates were 'normal' to be above 7 percent and we made it ok. We took out 30 year mortgages to keep monthly payments down.

After you close watch for times when rates go down and refinance at the lower rate and for a shorter term.

That's what we did.

 

[mrodgers]

When I bought my house rates were 6-7%. You young'uns aren't use to that, but it's not a huge deal. To many of us, it's just becoming normal after a decade of dirt cheap credit.

 

[tvguy]

Well, to be honest from a historic perspective 7% isn't a bad interest rate. 2-3% was what wasn't normal. But one thing that isn't changed in the 40 years since we bought our house, if you have a mortgage, you need to check interest rates from time to time to see if refinancing is a good idea. My daughter had a 3.9% mortgage and refinanced last year to 2.4%.
When my wife and I got married in 1982 mortgage rates were 16%. We jumped to buy a house in 1983 when rates fell to 12.25%. We refinanced to 9% in 1987 and to 6.25% in 1991.

 

[LYSE]

The problem is that the rate is 7 % and the prices are still high..falling but still affordability is way down compared to not long ago.

Many people are saying we aren't at the bottom yet, I would tend to agree but it's anyone's guess really. Personally I wouldn't want to be closing on a home right now unless I had to or the deal is well under market. If you hope to refinance later please keep in mind that could take a while, you could even find yourself upside down and being unable to refinance in the short to medium term. So make certain you could make those payments for the 30 years.

 

[Christine]

The problem is that the rate is 7 % and the prices are still high..falling but still affordability is way down compared to not long ago.

Many people are saying we aren't at the bottom yet, I would tend to agree but it's anyone's guess really. Personally I wouldn't want to be closing on a home right now unless I had to or the deal is well under market. If you hope to refinance later please keep in mind that could take a while, you could even find yourself upside down and being unable to refinance in the short to medium term. So make certain you could make those payments for the 30 years.

I agree with this. It's one thing to have a high interest rate, but the usual upside to that is that the housing prices are excellent when that happens. The rising interests rates have not cooled the prices yet, but if the high rates continue, those prices will go down.

I would really hate to be the one who bought a house at the top of its price point due to the rapid acceleration of home prices in the past 2 years AND pay a high interest rate. I understand that sometimes people don't have a choice, but I would not "choose" to be in this market now as a buyer. If I could I would wait for the eventual fall of home prices. Then buy. Interest rate will be high, but us "old folks" are used to buying and refinancing down as rates improve.

 

[FlightlessDuck]

Yep, should have moved 2 years ago. I suggest waiting it out.

 

[sheilafri]

Well, to be honest from a historic perspective 7% isn't a bad interest rate. 2-3% was what wasn't normal. But one thing that isn't changed in the 40 years since we bought our house, if you have a mortgage, you need to check interest rates from time to time to see if refinancing is a good idea. My daughter had a 3.9% mortgage and refinanced last year to 2.4%.
When my wife and I got married in 1982 mortgage rates were 16%. We jumped to buy a house in 1983 when rates fell to 12.25%. We refinanced to 9% in 1987 and to 6.25% in 1991.

We have similar memories of interest rates. My only advice would be to make sure you can afford the current rate. Then if rates go down take advantage and refinance.

 

[tvguy]

The problem is that the rate is 7 % and the prices are still high..falling but still affordability is way down compared to not long ago.

Many people are saying we aren't at the bottom yet, I would tend to agree but it's anyone's guess really. Personally I wouldn't want to be closing on a home right now unless I had to or the deal is well under market. If you hope to refinance later please keep in mind that could take a while, you could even find yourself upside down and being unable to refinance in the short to medium term. So make certain you could make those payments for the 30 years.

The issue here is, rents are more un-affordable than housing prices. My daughter bought half a duplex in a subdivision of identical duplexes. Those duplexes rent for $2,000 a month, more than she can afford. Her payment with insurance and taxes is $1,100, which is within her budget.

 

[kdonnel]

Maybe 100 year mortgages will be introduced in the American housing market.

Japan experimented with them in the 80's and 90's. I am not sure if it is still a common practice.

40 year mortgage modifications became popular during Covid as a relief measure.

Maybe it is time to make 40 year mortgages easily available. They are available but not as easy to get because of rules put into place after the 2007-2009 recession.

 

[tvguy]

We have similar memories of interest rates. My only advice would be to make sure you can afford the current rate. Then if rates go down take advantage and refinance.

Yup. And in our case, even when the minimum payment dropped with the two refinances, we kept paying the original house payment. Had the house paid off in 17 years. That equity was our backup money for our kids college, our oldest started 5 years after the house was paid for. Never needed to touch that equity so now it is a backup money source for our retirement, which we also hope never to touch. At the very least the house will be what we leave our kids.

 

[LuvOrlando]

You can always do an ARM and refinance if you think it will drop, although historically (prior to 2008 market manipulations) really around 7% is where it probably should be. I wouldn't expect much higher interest rates to be sustainable. If I was in your position I'd think I was in a good spot and would take fixed, if it dips a bunch I'd plan to refi in a few years.

I was researching recently and there are very few high risk loans being written (in contrast to 2005-8) so there is nothing I see to justify the push of rates upwards so today couldn't be less like prior market behaviors. Rates are going up because there really did need to be a market correction up from 0% interest, although what this has to do with inflation is bewildering. Seems the Fed is getting the hotfoot to manage "inflation" which naturally happens due to too much money supply but right now all the price jumps are more likely price fixing (evidenced by growing profits which actually shrink with inflation - so opposites day) even though Fed can't affect price fixing, but what the hay- let's see what happens.

This all strikes me as a strange hack, we are all hyper aware that this happens with computers and social media so I have no idea why people would be shocked it could easily happen with our markets, open as they are (although they are supposed to be monitored but not my circus and not my monkeys). All it takes is the key variables for inflation to be tapped to make things look a particular way and this can send people into tailspins which is very disturbing to me. Natural inflation severely slices into profits which trigger the layoffs of recession, but since there are no losses in profits best guess is cyclic employment will be the new prop to point at. If there is a dip after the holidays I suspect it will be in retail which is controlled by non US interests but not a real recession. Truly I'm just mystified at the spin & think we all need to just chill.

 

[tvguy]

Maybe 100 year mortgages will be introduced in the American housing market.

Japan experimented with them in the 80's and 90's. I am not sure if it is still a common practice.

40 year mortgage modifications became popular during Covid as a relief measure.

Maybe it is time to make 40 year mortgages easily available. They are available but not as easy to get because of rules put into place after the 2007-2009 recession.

Or people will start buying smaller, less luxurious housing. That happened during the economic downturn in the early 1980's here. A builder marketed several condo communities made up of condos that size of a two car garage, 400 square feet. The appliances were all half size of normal, and they all had Murphy beds to save space. I think they sold for like $25,000 and they sold out.

 

[LYSE]

The issue here is, rents are more un-affordable than housing prices. My daughter bought half a duplex in a subdivision of identical duplexes. Those duplexes rent for $2,000 a month, more than she can afford. Her payment with insurance and taxes is $1,100, which is within her budget.

Rental market will also be interesting, although what you described is often the case in any given time frame, after all people generally buy Rental properties to generate money so the rent is ideally significantly more than the monthly expenses.

 

[randumb0]

When I bought my house rates were 6-7%. You young'uns aren't use to that, but it's not a huge deal. To many of us, it's just becoming normal after a decade of dirt cheap credit.

And your house is worth at least double what you bought it for. Things aren't exactly the same now

 

[mrodgers]

And your house is worth at least double what you bought it for. Things aren't exactly the same now

It is not. It's maybe worth $110-120 now. Bought it in 2000 for $88. It was way out in the country away from where everyone else is and wants to be.

 

[tvguy]

Rental market will also be interesting, although what you described is often the case in any given time frame, after all people generally buy Rental properties to generate money so the rent is ideally significantly more than the monthly expenses.

Exactly. And a lot of renters don't realize they are actually paying the landlord's mortgage, upkeep and at least a small profit in most cases.

 

[randumb0]

OP there's not much you can do. There will be an increase in interest rates through the beginning of next year. If you plan to buy and live in the house for many years then just buy the house.

 

[tvguy]

It is not. It's maybe worth $110-120 now. Bought it in 2000 for $88. It was way out in the country away from where everyone else is and wants to be.

That certainly is unusual. Most housing prices here have doubled just in the last 3 years even if the house is in the sticks.

 

[barkley]

I'm on track to be buying a home in the new year, hopefully before my lease runs out in March. The current interest rate is around 7% and rising! I hate the thought of buying a house with the plan to refinance ASAP, but I don't really know what else to do. Does anyone have any good stories about refinancing? Or can you share your experience with buying when the interest rates are so inflated? When my ex husband and I bought our house the interest rate was under 4% so I'm feeling some sticker shock!!! And I read an article recently that was predicting we might see 10% interest rates!! I really want to follow through with my plan to buy but this kind of has me scared and ready to ask my landlord for another lease.

lots of good advice here on market and interest trends. as to your original question-

first home dh and i bought we were thankful to get for 30 years at 11%. it was the going rate at the time. a few years later we were able to re-fi for a few points lower and also drop our pmi so it saved a decent amount. 15 year mortgages weren't really a thing when we first bought but were gaining steam when we sold/repurchased 7 years later. we still opted for a 30 year-FIXED. i wanted to know we could always afford our payment and the 30 year gave us more breathing room but we could always choose to pay more monthly and pay off sooner (we did-with our current home, over 20 years sooner using this method). i liked the fixed rate b/c if rates dropped enough i could re-fi if i chose to but i never wanted my rate to go up.