Timing Mortgage Interest Rates

Interest rates have a huge influence on deciding the price you pay for your home. And though you can't control them, you can use them to save cash.

This page:

  • Describes the long-term interest rate cycle

  • Explains how interest rates should affect your mortgage choices

This section lays the groundwork for an easy home loan process. In the following pages we discuss fixing your credit, securing a mortgage pre-approval and compiling the necessary documentation for your mortgage.

How timing interest rates helps you save on your mortgage

Predicting what mortgage interest rates do in the future can be a tremendous advantage in choosing a mortgage, and may save you thousands of dollars over the life of your loan.

Sadly, that's easier said than done. Interest rates are an area that you, as the consumer, have very little control over. Rates rise and fall along with financial markets (and the economy in general) and these independent factors have a lot of influence over how much you pay for your home.

Interest rates tend to move in long cycles; after a long and gradual rise in rates, they tend to fall at a similar pace, and vice-versa. Where you find yourself in this cycle should determine what type of mortgage you get:

  • Fixed rate mortgages (FRMs) are based on the prime rate set by the Federal Reserve. As the name suggests, the rates on these mortgages are fixed at the time you secure the loan and do not change over the life of the mortgage. When interest rates are low, these are generally a better choice.

  • Adjustable rate mortgages (ARMs) are based on one of several indexes and usually feature a low fixed initial rate which is then adjusted to reflect market interest rates. These can be a better option if you want to buy when rates are low or if you plan on moving in the near future.

The ins and outs of ARMs and FRMs are discussed much more in depth in our guide to choosing the right mortgage. This was just a reminder to keep tabs on the interest rate market.

Sidebar
If interest rates are low and you need to secure a loan immediately, don't worry, there's still time for you to get a great deal:

• If your credit is OK, you can get pre-approved for the guaranteed lowest rates in the country at Eloan.

• If your credit is shaky, FullSpectrum Lending will give you the lowest sub prime rate possible, and help you rebuild your credit.

One very important thing to keep in mind:

Be cautious of being too cautious. Consumer researchers have observed that very few home buyers actually buy when interest rates are at their lowest because they're holding out for another quarter percent drop. Sometimes action pays off.

However, central to understanding to making wise home purchase decisions is understanding the action as an investment.



Next: The other big factor: your credit

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