Should I wait for mortgage rates to go back down?

Posted by  on Feb 26, 2013

Q: I was surprised to see mortgage rates rise recently. Do you think it's a good idea to wait for them to go back down before I buy a house?

A: Holding out for mortgage rates to go back down could be a very risky game -- you could end up waiting a lifetime.

Thirty-year mortgage rates bottomed out at 3.31 percent in late November of last year. By the end of January, 2013, they had risen to 3.53 percent. There are three things that might help you make sense of this situation: some historical perspective, a budget, and a mortgage calculator.

Historical perspective

The historical perspective is that the 3.31 percent low that mortgage rates reached in November was the lowest they've ever been. The more recent level of 3.53 percent may be a little higher than that all-time low, but it is still lower than mortgage rates had ever been until last year. In other words, not only are the odds against mortgage rates returning to 3.31 percent, but historical norms would suggest that chances are they won't stay as low as 3.53 percent.

A budget helps you plan

A budget should be your guide in telling you whether or not a rise in rates should affect your plans. Can you still afford a house at current levels? It's no good worrying about whether you might have gotten a lower rate a couple months ago. What matters is whether you can still afford to follow through with your plans at current rates.

How mortgage calculators can help

This is where the mortgage calculator comes in. It will help you translate each rise in rates into a change in monthly payments that you can compare to your budget. That will tell you whether the increase in rates might require you to adjust your price target or stay out of the market for the time being. However, if your budget and a mortgage calculator indicate you can still afford a house, the risk of waiting is probably not worth it.

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