If you’re a homeowner, you may have noticed fluctuations in interest rates. These changes, driven by economic factors like inflation, impact not just new homebuyers but also those with existing mortgage loans. Whether you’re considering refinancing, tapping into home equity, or selling your home, understanding how interest rates affect your mortgage can help you make informed financial decisions.
Frequently Asked Questions
How Do Changing Rates Impact Adjustable-Rate Mortgages (ARMs)?
With an adjustable-rate mortgage (ARM), your interest rate fluctuates in alignment with national rates. If you have an ARM, now might be a good time to refinance and lock in a fixed rate before rates increase further.
However, ARMs are typically offered at lower initial rates compared to fixed-rate mortgages, providing short-term savings. This can be beneficial if you recently secured your mortgage and plan to refinance later.
If you’re considering an ARM, you’re not alone—applications for these loans have surged. If you’re comfortable with some risk or plan to refinance into a fixed-rate mortgage later, an ARM might be a suitable choice. Be sure to carefully weigh the pros and cons and consult with a trusted loan specialist.
Should You Refinance to a Shorter-Term Mortgage?
The 30-year fixed-rate mortgage remains the most common loan type, offering stable payments regardless of market changes. However, if your current rate is higher than today’s averages, refinancing could help you secure a lower rate or switch to a shorter-term loan.
Refinancing to a 20-year or 15-year mortgage could:
- Reduce the total interest paid over the life of your loan
- Help you own your home outright sooner
- Improve your financial security in the long run
However, this option also comes with higher monthly payments, as the loan balance is spread over fewer years. If you can comfortably manage the increase, the long-term savings could be significant.
Can You Use Home Equity to Your Advantage?
If you’ve built up substantial home equity, rising property values may allow you to tap into that equity for financial needs. A home equity loan enables you to borrow against your home’s value, providing funds for:
- Home improvements (e.g., kitchen or bathroom renovations)
- Debt consolidation (e.g., paying off student loans or medical bills)
- Major expenses (e.g., education, investments, or emergencies)
Even as mortgage rates fluctuate, home equity loans generally offer lower interest rates compared to high-interest debts like credit cards. This makes them a strategic tool for managing your finances effectively.
What If You’re Looking to Sell and Buy a New Home?
Despite changing interest rates, home prices remain high in many markets due to ongoing inventory shortages. If you’re considering selling your home, you may still turn a strong profit, positioning yourself well for your next purchase.
However, market conditions vary by location. While the ultra-competitive seller’s market may be cooling, buyers now have more negotiating power, making contingencies less of a hurdle.
Before making a move:
- Work with a trusted real estate agent to understand market trends in your area
- Align your budget with your goals to navigate potential surprises
- Stay informed about mortgage rates to secure the best financing for your new home
Making the Right Move in a Changing Market
Fluctuating interest rates don’t have to deter you from reaching your financial goals. Whether you’re refinancing, leveraging home equity, or planning to buy or sell, staying informed is key.
If you’re ready to explore your options, reach out to a Mutual of Omaha Mortgage specialist today to learn more about our home loan solutions.
