Holding Out for Lower Mortgage Rates? Here's Why That Could Backfire

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KEY POINTS

  • Mortgage rates have risen sharply this year.
  • While you might think waiting to buy a home makes sense, doing so could set you back financially. 

You may end up sorely regretting that decision.

There's a reason so many potential home buyers have been frustrated with this year's housing market. Not only have home prices been sky-high, but over the past nine months, mortgage rates have been climbing steadily. And while they're not the highest they've ever been, they're the highest they've been in well over a decade. 

If you're looking to purchase a home, you may be thinking it's best to put that plan on hold and wait for mortgage rates to drop. But here's why you might regret that decision. 

Start building equity sooner rather than later

While it may be frustrating to have to take out a mortgage at today's rates, the reality is that we don't know what the coming year has in store for borrowing rates. Mortgage rates may end up dropping in 2023. Or, they might rise even more. If you delay your plans to purchase a home, you could end up spending even more in the course of taking out a mortgage.

That's why it doesn't necessarily pay to hold out for better mortgage rates than what you're seeing today. If you're in a great place financially to buy a home -- you have lots of money for a down payment, a steady job, and great credit -- and you manage to find a home that checks off all the right boxes, then the sooner you buy it, the sooner you can start building equity in it.

Along these lines, the more you delay homeownership, the more money you might end up spending on rent. But that's money you could be using to build equity in a place of your own instead.

You're not stuck with your mortgage forever

One reason a lot of home buyers fixate on higher mortgage rates is that they forget they're not necessarily stuck with those rates for life. Yes, if you sign a 30-year fixed mortgage at 6%, that 6% rate will continue to apply throughout the life of that loan. But that doesn't mean you have to keep that loan. 

Let's say you lock in your mortgage at 6%, but rates drop in 2026 and you're able to refinance to a new loan at 3.75%. Suddenly, you stand to lower your monthly payments quite substantially. At the same time, you'll have spent the last four years paying down a home you own and building equity in it rather than helping a landlord pay off their mortgage. 

A tough situation

The idea of paying up for a mortgage may not sit well with you, especially if you remember how low rates were at this time last year. But if you're in a place where you're ready to purchase a home and you actually find one that's a great fit, don't let higher borrowing rates drive you to put off that purchase -- especially since we have no idea what direction mortgage rates will go in the coming years. You may find that if you delay homeownership, it's a choice you wind up sorely regretting.

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