If you own a home, you may not care about the interest rates. Yes, they are rising, but you are in your home, so it doesn’t matter. But does it? Higher interest rates do affect homeowners in several ways. Keep reading to find out how.
Refinancing May not be Possible
First, you may be stuck in your current mortgage. Depending on how high rates get, it may not be worth it to refinance. This means a few things:
- You may be stuck with your current term
- You may be stuck with an adjustable rate loan that could adjust drastically
- You may not be able to tap into your home’s equity
If you are stuck with an ARM loan, that could get risky. Your ARM loan is tied to an index. Your adjusted rate depends on that index every year. If rates keep rising, you may find yourself with an unaffordable interest rate. If you didn’t already find out the worst-case scenario for your adjusted rate, now’s a great time to find out before it’s too hard to refinance.
Perhaps the largest downside of rising rates is the inability to tap into your home’s equity. If you want to make home renovations, pay for college, or just need an emergency fund, you may not be able to get to your home’s equity. It depends on the interest rates at the time. A home equity loan or line of credit may not be too hard to get, but refinancing your first mortgage in an increasing rate environment can be more difficult, not to mention costly.
Home Values May Fall
Interest rates and home values aren’t directly related, but one can affect the other. If interest rates continue to rise, the housing industry may naturally slow down. As it becomes harder to qualify for a loan, fewer people buy homes. With fewer homes moving, home values naturally decrease.
A lower home value could affect you in a couple of ways:
- You’ll get less money for the home if you sell in the near future
- You won’t have as much equity if you need/want to refinance
Rising interest rates could affect you in an indirect way. Unless you plan to keep your home and your mortgage for the remainder of its term, changing interest rates could affect you in ways you never saw coming.
Your Home May be Harder to Sell
Rising interest rates also affect your ability to sell your home. Higher rates make it harder for borrowers to get a loan. With fewer qualified buyers coming through, your home may sit on the market much longer than you anticipated.
Even if you do find a buyer, you may find yourself agreeing to a lower price than you anticipated. Whether your home sits on the market for a long time and you just want to get rid of it, or you need to go lower to make the mortgage more affordable, you could find yourself stuck.
How Will Rising Rates Affect You?
Stop and think for a minute about your situation. How much time do you have left on your mortgage? Is your payment affordable as is? Do you have equity that you may want to tap into? If you have any idea of making a change, consider doing it soon. This way you can take advantage of the lower rates before rates increase.
If you don’t think you’ll stay in the home or you won’t tap into the home’s equity, then you have decisions to make. If you want to sell, you may consider doing it sooner rather than later. Higher rates could make it harder to sell your home or leave you with less profit than you anticipated.
If you’re happy where you are at and are happy with your current mortgage payment, you can leave things as is. Just know that you may need to ride out the storm of rising interest rates for a while. Constantly stay aware of the mortgage interest rates and what they are predicted to do in the near future. You can then make an informed decision and not find yourself stuck with a mortgage that you don’t want, but with nowhere else to turn.