What Active Adults Should Know About Mortgages Right Now

A jar of coins with a plant sprouting out of it beside a wood house model.
Mortgage applications are up, and interest rates are down. This may be an opportunity to buy a new home or refinance an existing home loan.

As you’ve likely noticed, everything is more expensive now than it was a few years ago or even one year ago, and that includes mortgages.

After a few years of enjoying relatively low interest rates, mortgage rates are now higher. That’s due to inflation and the Federal Reserve’s attempt to cool the demand that has contributed to higher prices across the consumer spectrum. 

What does this mean if you’re a current homeowner or a potential buyer? We’re sharing everything you need to know about mortgages. Active adults looking for home loans have a number of good options. You’ll simply have to be more patient and prepare to pay a higher rate—at least until it’s safe to refinance. 

Let’s take a look at what to know about mortgages now, and how they might shift in the future. 

Everything You Need to Know About Mortgages Currently

A wooden house model beside mortgage paperwork, reading glasses, and a jar of coins.

Mortgage rates at the end of May 2023 have inched back towards 7%. This is the highest that rates have been in more than six months when they peaked in November of 2022. 

Why Are Interest Rates High?

Your mortgage rate will be unique. It depends on where you’re buying, how much of a down payment you’re making, how long the term of your loan will be, how much you’re borrowing, and whether you have a strong credit score. 

There’s a specific starting point for everyone, though, and that comes from the mortgage-backed securities (MBS) that are traded on Wall Street. The prices of these securities change, and so do their value. This is what impacts mortgage rates. 

During periods of low inflation, mortgage rates stay low. Inflation and economic uncertainty, however, will drive those rates higher.  

Unless you’re planning to pay for your new home in cash, you’ll have to expect a mortgage rate that’s high enough to make a difference in your monthly payment.

Tips for Buying Right Now

Planning to buy now and you’re not thrilled that your mortgage will come with 7% interest? Focus on the things you can control. Here are some ideas:

  • Keep your credit looking good. Pay down debt and be responsible with your money. Make on-time payments for everything, and don’t borrow more than you need.
  • Don’t spend more than you need. You might be approved for a $600,000 mortgage, but that doesn’t mean you have to look for a $600,000 house. 
  • Consider a 15-year mortgage versus a 30-year mortgage. This will keep your rate lower. 
  • If you’re selling a current home before buying a new one, you may have a larger down payment available. This will help you save money in mortgage interest and give you more equity right out of the gate.

Preparation will help you make smart decisions while you buy. Pay attention to the current mortgage rates and the available inventory and surround yourself with experts who know your market and understand how you can best position yourself to get a good mortgage deal.

Is This the Best Time to Buy?

Bags of money balancing with a wooden home model.

As we tell you everything you need to know about mortgages, it’s also a good idea to tell you about the market. Whether or not you’re in a buyers’ market or a sellers’ market will depend on where you are, geographically. 

For most of the country, the last couple of years has been a challenging time to buy. The sellers had most of the power because prices were high and inventory was barely able to keep up with demand. As mortgage prices climb and housing prices peak, some areas have noticed a shift. It’s taking longer to sell homes, and there’s less competition among buyers. Which makes it a great time for you to put in an offer.

There is likely to be less competition unless you’re buying in a market that remains hot. Even if you find the home you want at a price you can afford, buying a home during periods of economic uncertainty can be a bit unnerving. Here’s how to manage that.

Inventory is low. You’ll need to be patient.

Buying during a period of economic uncertainty means a scarcity of available homes. While everyone was in a hurry to sell two years ago, now homeowners are feeling like they want to hold onto their homes forever—or at least until the market feels less volatile. There’s not a lot out there, and buyers will need to either be flexible with their demands or willing to wait until exactly the right home shows up for just the right price.

Buying is still likely to be better than renting.

It can be a challenge to buy when the market is giving everyone whiplash and mortgage prices are higher, but there’s still more value in owning than in renting, especially now. Rents have risen dramatically in just about every part of the country. Renters are spending more than 30% of their income on rent every month. 

Real estate markets always change.

The current market is likely to change once inflation begins to slow and mortgage rates drop again. Buyers who purchase a home during a tight market may feel like they’re getting less for more, but real estate can be counted on to appreciate. The value of the property will rise and there will be opportunities to refinance as rates come down and equity is earned.

House Hunting Expectations

Back view of a happy retired couple looking at their new house.

Buyers right now will require some excellent tools and resources to effectively navigate the housing market. 

  • Start with a great real estate agent. You’ll need local market knowledge as well as support when it’s time to negotiate your purchase. 
  • Get pre-approved for a mortgage. Don’t start house hunting until you know what you can afford and what you’re willing to spend. Understand your budget.
  • There’s likely less to choose from. Inventory remains low, so either be flexible with what you absolutely must have in your next home or be willing to wait for the right home to show up on the market. 
  • Consider new construction. This might be the best way in when there’s not a lot available. 
  • Act quickly. You’re competing with other buyers for a limited number of homes. When you find something you like that’s in your budget, make an offer. 

Mortgages for Retirees

A retired couple smiling in front of their new home in a 55+ community.

Buying a home in or near retirement comes with a different set of priorities than buying at the start of a marriage or once children arrive or at the beginning of a career. Most active adults looking for their retirement home will be selling an existing home in order to move. They’ll have an established credit history, verifiable financials, and additional assets. 

Fixed-Rate vs. Adjustable-Rate Mortgage

Most buyers who identify as retirees will choose between a fixed-rate and an adjustable-rate mortgage. There are pros and cons to each.

A fixed-rate mortgage has an interest rate that doesn’t change. Borrowers pay the same amount for their mortgage every month, over the life of the loan. 

With an adjustable-rate mortgage, what is paid in interest will depend on current mortgage rates. The mortgage rate can change every year or every two years. These are less popular, especially now. 

Retirees, unless they’re only planning to live in their homes for five years or less, are likely better off with a fixed-rate mortgage. If the rate feels too high, there’s always an option to refinance later. 

Everything You Need to Know about Mortgages: Refinancing

A retired couple signing a mortgage agreement for their new home in a 55+ community.

Refinancing a mortgage is basically obtaining a loan to pay off your existing mortgage and then agreeing to a new mortgage. It provides a clean interest rate and a new set of repayment terms. 

Unless the interest rate on your mortgage is somehow higher than where they are right now, refinancing is not a great idea. It will only result in a more expensive mortgage payment. 

According to home loan experts, refinancing makes sense if you can lower your current interest rate by at least 0.75 percentage points.

Reasons to Refinance

One good reason to refinance would be if you were in an adjustable-rate mortgage and you want to get into a fixed-rate mortgage to avoid future increases in interest. 

While now might not be the right time for most homeowners, there could be an opportunity in the future, when refinancing makes financial sense. This is especially true if you’re buying now, with mortgage rates at or above the 7% rate. If you locked in a low rate before the interest rates began climbing, it could be some time before they’re low enough that it would make sense to refinance. 

Homeowners will want to refinance later in order to:

  • Lower interest rates. Shorten your loan term for even more savings on interest. 
  • Cash-out to consolidate high-interest rate debt. You’ll take out the equity you have in your home, pay off some big bills, and then resume paying your mortgage at whatever new rate was negotiated.
  • Tap into your home equity for cash. Maybe there are improvements you want to make to the property, a wedding to pay for, or a child to put through college. Accessing the cash in your property can help, and refinancing allows you to do that.
  • Eliminate mortgage insurance. Private mortgage insurance (PMI) is required with some mortgages, and if you want to refinance into a mortgage that doesn’t require the insurance, you can do that while also obtaining a new interest rate.

Are Mortgage Rate Changes Coming Soon?

A red arrow pointing down beside wooden model homes.

It’s difficult to know where mortgage rates are headed. Some experts believe that they will begin to settle and start going down as we move through 2023. Other experts believe things will get worse before they get better, and rates may go up again before they consistently begin dropping. 

No one has a crystal ball. Whether mortgage rates rise, fall, or stabilize will depend on the economy, the Federal Reserve’s actions around interest rates, and how the housing market continues to respond and shift.

Mortgage rates tend to change daily, whenever the stock market is open. There isn’t often a dramatic change from hour to hour, but when a buyer finds a rate that they’re comfortable with, it’s a good idea to lock it in.

55places.com Is Ready to Help You

Buying a home in this market can feel chaotic. Finding the right mortgage for retirees can also seem like a challenge. We’re here to help. Contact 55places.com today, and we’ll help you through every step of your homebuying journey!

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