Why Higher Mortgage Interest Rates Wouldn't Stop Me From Buying a Home

If you're ready to buy a home, don't pass up the chance just because rates are up a little.

Mortgage rates have gone up considerably since the record lows they reached during the early days of the pandemic. In fact, rates in March of 2022 are now more than a full percentage point higher than they were during the summer of 2021.

Despite the fact that a mortgage loan will definitely cost more now, I wouldn't let that interfere with my plan to purchase a home if I was in the market for one. Here's why.

Buying a house remains a good investment

The fact is, even when mortgage rates are relatively high, buying a home is typically still a good investment for most people.

Homes tend to increase in value over the long term, and homeowners on average end up with higher net worths than renters do because they benefit from property appreciation and they acquire a valuable asset as they repay their mortgage.

Mortgage interest is also tax deductible for those who itemize, and rates are far lower than on most types of debt. If you choose a fixed-rate loan, your rate and payments are also locked in so your housing costs are predictable. And as inflation erodes the buying power of money, your mortgage payments effectively become less expensive over time.

Rates are still low by historical standards

Although rates are high compared to the pandemic lows, they are still very low by historical standards. For many people, it's possible to borrow to buy a home for less than 4.5% right now. For comparison, in the 1980s, mortgage rates briefly topped 16% -- and in the 2000s, they were above 6% at certain times.

Since rates remain relatively competitive when looking at the big picture, borrowing is still affordable for a lot of potential home buyers -- as long as they don't stretch to buy a home that's far outside of their means.

It's hard to predict how rates will trend in the future

While it may be tempting to wait to buy a home until rates drop, no one can predict when or if that's likely to occur. In fact, rates are just as likely to go up as they are to go down. By waiting in hopes that rates drop, you could find yourself sitting on the sidelines for years as property values rise without you.

Refinancing in the future is always a possibility

Finally, if rates do end up falling in the future after you get a home loan, it's almost always possible to refinance and benefit from the rate drop.

Refinancing means securing a new home loan, which could come at a rate below what you're currently paying for your mortgage. While there are some upfront costs associated with this, it's worth it in the event of a big rate drop. Plus, the ability to refinance helps protect buyers from getting stuck with very expensive loans when interest costs are dropping.

For all of these reasons, if I was financially prepared to buy a home, there's no way I would allow rising rates to deter me from following through with it. Doing so could mean giving up a great chance to begin building equity and enjoying homeownership.