Should You Buy a Home in Cash Now That Mortgage Rates Are Rising?

Mortgage rates have been rising sharply all year. Does it pay to purchase a home in cash if you can?

Mortgage rates were nice and affordable throughout 2021. But rates have been climbing upward at a rapid pace over the past few months, and at this point, borrowing for a home is just plain expensive.

Here's a summary of mortgage rates for April 20:

Data source: The Ascent's national mortgage interest rate tracking.

30-year mortgage rates

The average 30-year mortgage rate today is 5.241%, up from 5.193% yesterday. A 30-year loan will give you lower monthly payments than you'll get with a shorter-term loan, but it will cost you more in interest over time.

20-year mortgage rates

The average 20-year mortgage rate today is 5.118%, up from 5.042% yesterday. You'll get a lower interest rate on a 20-year loan than with a 30-year loan since you're cutting your repayment time by a decade, but your monthly payments will be higher.

15-year mortgage rates

The average 15-year mortgage rate today is 4.376%, up from 4.354% yesterday. With a 15-year loan, you'll spend less money on interest in the course of repaying your home. But on a monthly basis, your payments will be higher.

5/1 ARMs

The average 5/1 ARM rate is 4.089%, up from 3.991% yesterday. A 5/1 ARM could save you money initially compared to a 30-year mortgage thanks to the lower interest rate you can snag. But after five years, your rate could start adjusting upward, making your mortgage payments more expensive.

Does it pay to make a cash offer now that rates are higher?

Higher mortgage rates mean you'll get stuck paying more interest in the course of financing your home purchase. And so if you happen to be sitting on a pile of cash, you may be tempted to use it to purchase a home rather than deal with a mortgage.

It's a good idea in theory, and one that could save you money on interest. But there's a danger in tying too much money up in a home.

For one thing, if your financial situation changes for the worse, you may be left with too little savings to make ends meet. And also, generally speaking, tying up money in a home means running the risk that you won't be able to access it easily. If you come across an investment opportunity, for example, you may have to pass due to a lack of cash.

That's why it could still pay to take out a mortgage -- even with rates being higher. But if you're going to go that route, be sure to shop around with different mortgage lenders so you're able to pinpoint the best deal on a home loan.