Interest rates, what to do about them
- B.J. Yoder: Young Money
- September 7, 2023
- 437
It seems like anyone looking to purchase a home has been bombarded with news about the interest rates for home loans, hovering at roughly 7%. According to The New York Times, this is the highest interest rates have been since 2002.
If you locked in your 30- or 15-year mortgage rates during COVID at 2.75-3.1%, this news is fine with you because you benefited from locking in some of the lowest mortgage rates in a very long time. I was able to benefit from that, but unfortunately, I am moving and buying a house very soon.
I sat down with my loan officer, and he told me the interest rate would be 6.75%. I replied, “That’s a lot higher than the 2.75% you gave me a couple years ago,” but I knew I had to accept it. The question that lingers in so many people’s minds is “Should I buy a house during this historically high interest rate era?” My answer — of course, do your research — is yes, but with caveats.
It killed me to compare what my monthly payment would be at 3.1% and now at 6.75% because it seems like I am just flushing money away. The words running through my mind are “if I had only bought this new house three years ago.” That is not the correct attitude to have, and I can work myself into a frenzy thinking of the “what ifs.”
The largest caveat with these interest rates is you have to adjust and be 100% sure you are not buying too much house and getting burned in the end. A huge mistake you can make is buying the house at 7% counting on interest rates to decrease in the coming years. Thinking you should be able to redline for a few years and barely make the payments and only hope that it drops down to 4% can lead to financial ruin.
The other caveat goes along with the first one, and we must be aware we cannot predict the future. I have told many people that if I could predict the future, I would be the best insurance agent in America, but that is not the case. For example, my wife and I are currently a dual income, no kids (DINK) household. My guess is in the next 10 years, that will probably change due to starting a family. While having two incomes and receiving two paychecks is nice, if we would have bought this house dependent on the fact that we will need both incomes to pay the mortgage, things could head south very quickly.
Anything could happen in the next week, month or year. It is always tough to think about, but we are not given tomorrow.
Buying a house and depending on every single situation’s outcome becoming the best outcome possible is not smart. Especially with buying a house, the absolute best outcome will never happen. There will always be a leaky this or that; you will have to repair the deck or fix the fence. Thinking the mortgage payment is the only monetary payment you will make is not the way to look at it either. Outside of the interest rates, take into consideration repairs, taxes and utilities.
Looking into a new place doesn’t solely depend on the interest rates, but start there and look at the hard numbers including the big picture of everything included. Math never lies, and if you need to come to the conclusion you cannot buy this house, don’t do financial acrobatics to make it work. Because even if you think everything will go perfect, I can promise it will not.
Holmes County native BJ Yoder is an insurance agent by day and a finance enthusiast by night. This column is for informational purposes only. He can be emailed at benjamin.john.yoder@gmail.com.