During the past month, mortgage rates have risen sharply, moving from about 3.40 percent to their current level of 3.90 percent, according to Bankrate.
Whether you own a home and already have a mortgage or are thinking about taking on new mortgage debt with a home purchase, it's essential to avoid the mistakes that many people make when rates abruptly rise. In particular, the best way to keep from making an impulsive move that you'll later regret is to make sure you don't react emotionally to rate changes.
What Higher Rates Make You Want to Do
Even with a relatively small rise in interest rates, would-be homebuyers are already falling prey to the conflicting emotional currents that affect a home-purchase decision.
On one hand, some would-be buyers look at the higher rates and erroneously conclude that a home purchase is now out of reach. On the other hand, some experts believe that the rise in rates could well lead to more home-buying activity, as buyers rush to lock in rates before they increase further.
With respect to the affordability question, the numbers show that the impact of rising rates on monthly payments isn't as great as you might think.
Using a standard mortgage calculator, you'll find that on a 30-year mortgage for $200,000, the recent rise in rates only increases your monthly payment by about 6 percent, from $887 to $943. And while that might keep a small fraction of would-be homebuyers on the margins from being able to buy, for many, coming up with an extra $56 per month to put toward a mortgage payment isn't impossible.
When it comes to accelerating home purchases, the latest data from the Mortgage Bankers Association support the fact that home buyers do indeed feel the pressure to move forward before rates rise further. Although applications for refinanced mortgages fell 15 percent as of the week ending May 24, new-purchase mortgage applications actually rose 3 percent and hit a three-year high, indicating more buying activity. Unfortunately, impatience takes away a key negotiating advantage that buyers have in choosing a home and getting the best bargain they can.
What You Should Do Instead
Letting emotions overwhelm your rational judgment is never the right move when a major purchase is involved. Here are a few things you can do now that will help you avoid that pitfall:
If you're in the market for a new home, contact lenders now and figure out which one will give you the best financing package. Once you've picked one, go through the mortgage pre-approval process to find out how much you can afford to spend. But don't stop there. Also ask your lender to give you a sense of how that pre-approval amount will change with rising rates. That way, you can nudge your targeted home-purchase price downward and shop without fear that stretching your budget to the limit could make a purchase collapse from lack of financing if rates rise even the smallest amount from their current levels.
Similarly, if you're looking to refinance, have your preferred lender go through a series of different scenarios to find out what the impact will be if rates rise further. If a refi would still make sense even if rates rise higher from here, then you have more flexibility to hold out for a short-term decline. On the other hand, if waiting puts your entire refinancing at risk by making it economically infeasible with the tiniest of further rate increases, then you'll know what's at stake and can act quickly with greater conviction.
Finally, bear in mind that even after their recent move upward, mortgage rates are still very low by historical standards. Years from now, when interest rates are closer to more normal levels, you likely won't be dwelling on the fact that you had to pay half a percent more than the best rate you could have swung; you'll just know you got a good deal.
The Monster in the Closet: Economic Horrors and Scary Movies
Mortgage Rates Are Rising: Do Home Buyers Need to Act Fast?
If you thought this classic horror movie was about a haunted house, see if this scenario sounds familiar: An idealistic young couple buys a home that sounds too good to be true. Once they're mortgaged to the hilt, problems start to crop up. They can't leave, they can't stay, and an unseen evil force starts to tear their family apart.
Filmmakers have used zombies to symbolize everything from faceless corporations to the inhumanity of the military industrial complex. In this early offering (and, to a lesser extent, in its remake), it isn't particularly hard to figure out the greater symbolism of a bunch of mindless, shambling zombies swarming into a shopping mall.
Speaking of mindless shambling, "Shaun of the Dead" used the same conceit to symbolize office work.
Everybody remembers Janet Leigh's death scene in the classic slasher flick. What they forget, though, is why she ended up in the Bates Motel in the first place: She was on the run after stealing a small fortune from her employer. As for the motel itself, it was facing hard times because the recently-unveiled highway drove away business.
For a funnier take on a similar story, you might try taking a peek at "Auntie Lee's Meat Pies", which manages to brilliantly combine cannibalism, serial murder and Pat Morita.
Forget ghosts and ghouls: Few things are scarier than asking the bank for a loan. But in this Sam Raimi-directed flick, the tables are turned as a young loan officer turns a deaf ear to a seemingly feeble gypsy woman trying to borrow some money. Needless to say, all hell breaks loose.
On the surface, this 1981 classic is the tale of super-evolved wolves preying on New Yorkers. Scratch a little deeper, though, and another story emerges: The tale of wealthy Manhattanites preying on poor people in the Bronx, then being themselves preyed upon by wolves. In other words, NYC in the 1970s was truly a dog-eat-dog world.
If you want another fix or two of class-based horror, check out "CHUD" and "Street Trash," both of explore the plight of New York's invisible homeless.
Sure, Stanley Kubrick's 1980 horror film is all about telepathic kids and haunted houses and elevators full of blood. But one of the first bits of fear and tension occurs in the hotel manager's office, where Jack Torrance, a recovering alcoholic who can't seem to hold onto a job, finds himself forced to beg for a gig as the winter caretaker of a resort hotel. Anybody who remembers the travails of searching for a job will recognize this truth: The nightmare isn't being trapped a haunted house -- it's having to grovel to get a job in a haunted house.
Angus Scrimm's Tall Man character is one of the more unnerving monsters in filmland: Not only does he steal the bodies of the dead, but he also steals the souls of towns. As Reggie and Mike travel cross country, it isn't hard to pick up his trail -- they just have to look for boarded-up stores, deserted streets and abandoned homes. Of course, for 1988 audiences facing the effects of outsourcing, the monster emptying out their towns was a little harder to explain.
For another take on the "monsters-as-suburban-economics" metaphor, take a peek at "Poltergeist." Between the unethical developer who didn't bother to relcoate a graveyard and the mindless TV that saps your soul, the Tobe Hooper classic manages to hit a host of cultural touchstones!
A whole subset of horror films is dedicated to rural families living off the land ... and the miserable travelers who happen across their path. It isn't hard to see why it might be an attractive premise: After all, there's no lack of people clinging to the bottom rung of the economic ladder, and it isn't hard to imagine that they may be one paycheck away from having to make their own clothes and hunt their own meat. What happens afterward ... well, that's where it gets really ugly.
If you want even more tips on living off the land (and curious teenagers), you might check out "The Hills Have Eyes," "Wolf Creek" and "Mother's Day." For a funny take on the same premise, try "Tucker and Dale Versus Evil."