Should You Buy a House When Interest Rates Are High or Wait for Rates to Drop?
If mortgage rates are around 7% today, should you buy a home now or wait and hope rates eventually fall closer to 5%?
At first, it sounds like an easy decision. A lower mortgage rate generally means a lower monthly principal and interest payment on the same loan amount.
But there is another question worth asking:
What could the housing market look like if mortgage rates do come down?
If lower rates bring more buyers back into the market, you could be shopping in a completely different environment, with more competition and potentially less room to negotiate.
That is why I don’t think buyers should make a home purchase decision based on the interest rate alone. The price of the home, your monthly payment, competition, negotiating power, available inventory, seller concessions, and your personal timeline all matter.
Should You Buy a House When Mortgage Rates Are High?
Buying a home when mortgage rates are higher can still make sense if the home and total monthly payment comfortably fit your budget.
There can also be another side to higher rates: buyer competition.
When borrowing becomes more expensive, some prospective buyers may decide to postpone their home search. Depending on what is happening in the Denver real estate market at the time, fewer active buyers can sometimes create more opportunities to negotiate.
That could mean negotiating things like:
- Purchase price
- Seller concessions
- Closing costs
- Inspection items
- Closing timeline
- Other terms of your offer
None of these are guaranteed, but they are part of the bigger picture buyers should consider.
The interest rate matters. So do the terms under which you are able to buy the home.
What Happens If Mortgage Rates Go Down?
Now let’s look at the other scenario.
Imagine mortgage rates eventually fall from around 7% to 5%.
Your first thought might be, “I’ll just wait and buy when rates are lower.”
If everything else stayed exactly the same, the lower rate would obviously be attractive.
The problem is that everything else may not stay the same.
Lower borrowing costs could encourage some buyers who had been sitting on the sidelines to start shopping again. If demand increases for the same homes you are interested in, you could potentially encounter more competition.
That could mean multiple offers on desirable homes and less negotiating power for buyers.
It does not mean lower mortgage rates are bad for home buyers. Lower rates can significantly improve affordability on a given loan amount.
It simply means that mortgage rates should not be considered in isolation.
7% With Less Competition or 5% With More Competition?
Here is the hypothetical question I like to give buyers:
Would you rather buy a home around a 7% mortgage rate with less competition, or around 5% while competing against multiple other buyers?
There is no universal right answer.
There is also no guarantee that either scenario will happen exactly that way.
A 5% mortgage rate does not automatically mean ten buyers will compete for every house. A 7% mortgage rate does not guarantee that you will be the only buyer interested in a property.
The point of the question is to think beyond the interest rate.
A lower mortgage rate may reduce your monthly payment on the same loan amount. A less competitive housing market may give you more opportunities to negotiate the price or terms of your purchase.
The better question is:
Which combination of home price, mortgage rate, monthly payment, competition, and purchase terms makes the most sense for you?
Can a Seller Help Buy Down Your Mortgage Rate?
Potentially.
Depending on the transaction and financing, seller concessions may be used toward certain allowable buyer costs. In some situations, a seller or another party may also contribute toward a mortgage rate buydown.
A mortgage buydown generally involves money being paid upfront to reduce the borrower’s interest rate or payments according to the specific loan structure.
There are different types of mortgage buydowns, and they are not appropriate or available in every transaction.
If a buydown is being considered, I recommend having your lender show you the actual numbers.
Ask:
How much does the buydown cost?
What will my monthly payment be?
Is the rate reduction temporary or permanent?
If it is temporary, what will my payment become afterward?
How does this option compare with negotiating a lower purchase price or using the money toward other closing costs?
Looking at the actual numbers can be much more useful than focusing on the advertised interest rate alone.
Can You Buy a Home Now and Refinance Later?
Potentially, but refinancing should never be treated as a guarantee.
If mortgage rates decline in the future and you qualify, refinancing may give you an opportunity to change your mortgage terms or potentially lower your interest rate.
However, refinancing generally involves costs, and your ability to refinance later can depend on future mortgage rates, your financial situation, credit, property value, equity, and available loan programs.
That is why I would not recommend purchasing a home you cannot comfortably afford today based on the assumption that you will definitely refinance into a lower payment later.
Instead, I prefer to look at it this way:
Make sure the home and payment work for you with the financing available today. If refinancing becomes beneficial in the future, consider that an additional opportunity rather than something required to make the home affordable.
What Actually Determines the Cost of Buying a Home?
The mortgage interest rate gets a lot of attention, but it is only one part of the cost of homeownership.
When you’re evaluating a home in Denver, look at the entire financial picture.
Purchase price: How much are you actually paying for the home?
Down payment: How much money will you put toward the purchase upfront?
Mortgage rate and loan terms: What will it cost to borrow the remaining money?
Property taxes: What should you expect to pay for the specific property?
Homeowners insurance: What will coverage cost?
HOA dues: Does the home have an HOA, and what are the dues?
Mortgage insurance: Will your loan require it?
Closing costs: How much cash will you need in addition to your down payment?
Maintenance and repairs: What should you reasonably budget for once you own the home?
Ultimately, I want buyers paying attention to the total monthly payment and overall cost of owning the home, not just one number in a mortgage rate headline.
Should You Wait for Mortgage Rates to Drop Before Buying?
There is no universal perfect time to buy a house.
Waiting may make sense if your finances are not ready, the homes currently available do not fit your needs, or the monthly payment is not comfortable.
Buying now may make sense if you find the right home, can comfortably afford the payment, and current market conditions give you terms that work for your situation.
Trying to perfectly time mortgage rates and home prices is difficult because both can change.
Instead of asking:
“When will mortgage rates finally be perfect?”
I think a better question is:
“Do the home, monthly payment, and timing make sense for my life right now?”
That is where I would start.
What Are Mortgage Rates Right Now?
Mortgage rates change frequently and vary based on the borrower, lender, loan type, credit profile, down payment, and other factors.
Because of that, a national mortgage rate average should be treated as a market reference point, not the rate an individual Denver home buyer is guaranteed to receive.
If you’re actively considering buying a home, a qualified mortgage lender can provide personalized scenarios based on your finances and the type of property you are considering.
Then we can use those numbers to look at what is actually available in the Denver housing market.
Buying a Home in Denver, Colorado?
If you’re considering buying a home in Denver or the surrounding metro area, don’t let one mortgage rate headline make the decision for you.
Let’s look at the bigger picture.
What can you comfortably afford? What homes are available in that price range? How much competition are we seeing? Where might there be room to negotiate? Could seller concessions or a rate buydown be part of the conversation?
Once you have those answers, you can make a much more informed decision about whether buying now or waiting makes sense for you.
Call or text me, Kayla Schmitz, at (303) 249-4118 to talk about buying a home in the Denver area.
This article is for general informational purposes and is not mortgage, financial, tax, or legal advice. Mortgage rates, loan terms, eligibility, seller concessions, and refinancing options vary. Talk with a qualified mortgage professional about financing specific to your situation.
