Why Interest Rates Keep Rising and How It Affects Buyers

As you hear about interest rates rising, you might find yourself weary of buying a home. The Federal Reserve will periodically raise interest rates in an effort to stabilize prices and cool down the economy in the hopes of slowing inflation. These short-term interest rate hikes can have ripple effects on the economy. When the Fed raises interest rates, this impacts borrowing, particularly with higher loan amounts. However, homebuyers can still find great homes for sale in Kissimmee, FL, and work with a real estate broker to select a mortgage that works best for their finances.

What Is Causing Interest Rates to Rise?

You might be wondering what causes interest rates to rise. Various factors can impact the Fed's decision to raise interest rates. Inflation is a hot-button issue in the news right now because the economy is experiencing rapid price increases. The recent COVID-19 pandemic has led to economic shutdowns around the globe, disrupted supply chains, and increased money circulating in the economy as people are no longer isolating at home for long periods of time. In addition, the war in Ukraine has led to sanctions and embargoes that affect imports and exports of oil, leading to rising oil prices as well. All these factors impact why interest rates keep rising, and people across the country are noticing the effects. The Fed raises interest rates, making it more expensive to borrow money, which in turn helps to slow down spending. People looking to buy a home are particularly impacted because of the correlation between house prices and interest rates.

How Homebuyers Are Affected by High Interest Rates

As the federal funds' rates are increased by the Federal Reserve, this leads to higher interest rates across various aspects of the economy, including the homebuying process. Mortgage rates can also be impacted by rising interest rates, which can affect homebuyers both positively and negatively. When mortgage rates rise, buyers might end up qualifying for a lower loan amount than expected. A mortgage preapproval is based on your debt-to-income ratio and your down payment amount.

Higher mortgage rates can lead to a higher monthly payment, which can make it difficult to find homes in your price range. However, when property values go up, this can also cause the price of renting to go up. While renting might seem like the obvious choice in a higher-priced housing market, it is not always the best decision financially. In fact, rising interest rates can cause rent prices to go up faster than your potential mortgage payment. This means homebuyers could find that buying a home will actually help them save money as opposed to renting instead.

What Home Buyers Can Do to Ease Rising Interest Rates

Homebuyers do not have to avoid purchasing a new home because of rising interest rates. Instead, homebuyers should take a look at their financial situation to determine whether slightly higher monthly payments on a mortgage for a short time will lead to longer-term satisfaction and stability. Here are a few things homebuyers can do to ease the impact of rising interest rates on the search for your new home:

Manage Finances Well

One of the best things a homebuyer can do to prepare for the home buying process is to manage their finances well. Develop a plan to pay down existing debt and make a positive impact on your debt-to-income ratio. You might want to start by targeting debts with the biggest monthly payments to help alleviate your monthly financial burdens. You can also work to improve your credit score, which plays a large role in determining your interest rate options. Homebuyers can also focus on building their savings for a sizeable down payment. The higher your down payment, the less risk for your mortgage lender, which can also have a positive impact on the interest rate.

Seek the Help of an Experienced Real Estate Agent

Work with an experienced real estate agent who understands how to effectively navigate this challenging real estate market. A good real estate agent will help you find properties that work for your budget and can also help negotiate to ensure you get the best price for your future home. Our team of real estate agents at Florida Realty Marketplace have extensive experience in Florida real estate and work hard to find homes for sale in Florida that will work within your budget and meet your goals.

Try to Get Pre-Approved

The pre-approval process can also help you get a better idea of how much you can afford and what your monthly payments would be like. When you are pre-approved for a mortgage, this also demonstrates to the seller that you are serious about buying a home and already have a plan for financing to back up your offer. Work with our team at Florida Realty Marketplace to learn more about how you can get pre-approved with a credit check and review of your income, assets, and other pertinent information.

Know Where to Start Looking for Homes for Sale

Another key aspect of making the homebuying process work for you when interest rates are on the rise is to look in the right places for homes for sale. Partner with an experienced real estate agent who knows the ins and outs of the areas you are interested in so they can help you find the best deals on homes that match your needs. When interest rates are high, you might also want to talk through your list of must-haves and identify any things that might be nice to have but are not deal-breakers for your homebuying process. Our team at Florida Realty Marketplace wants to help you get everything on your wishlist and can identify the best places in town to find the perfect home for you.

Final Thoughts: Should High Interest Rates Stop You from Buying a Home?

Navigating the process of buying a home doesn't have to be a stressful experience for homebuyers. When you work with a trusted real estate agent, they will talk you through all the pros and cons to help you determine whether now is the right time for you to buy a home. There are so many opportunities for homebuyers to navigate high mortgage interest rates and still come out on top. Check out our handy mortgage calculator tool to get an idea of how interest rates will impact your monthly payments on your dream home, and contact us today to learn about all your options for easing the effects of rising interest rates on your homebuying process.