Home Buying Interest Rates Are Fluctuating — Here’s What It May Mean for You

by Tara Mastroeni | May 30, 2023

Whether you already own a home or are thinking of buying one, today’s fluctuating interest rates can have certain implications for you. To help you identify those, we tapped top pros for their best advice on navigating the current housing market.

Right now, the recent spike in interest rates means you may pay more in interest charges for your home over time, which can make home buying more expensive overall. At the same time, when rates go up, other market factors like home prices tend to start to shift so that these costs eventually become more affordable than they were.

Many of today’s market metrics, like home prices and time on market, indicate that this shift is beginning and that the market is starting to correct itself. For one thing, home prices are dropping nationally. (According to recent data from the National Association of Realtors, the median national home price is now $375,7000, which is down 0.9% compared with what it was a year ago.) Generally speaking, a lower sale price can help contribute to a lower loan amount, which may make payments more affordable despite higher mortgage rates. Here’s helpful advice for both owners and buyers.

If you already own your home…

While interest rates are in flux, you may want to think about whether your current mortgage will be affected. This depends on the type of loan you have. If it’s a fixed-rate mortgage, the interest rate stays the same over the life of the loan so you won’t be impacted by ups and downs. Alternatively, if you have an adjustable-rate mortgage (ARM), your monthly payment amounts could increase since this type of loan is subject to market changes, says Ashish Parekh, a home lending officer at Citibank.

You could consider refinancing if you’re able to find a lower rate, notes David Brasington, an economics professor at the University of Cincinnati, though “it’s unlikely given what’s happened over the last few years,” he says. “And if you get a lower rate, it’s probably going to be an adjustable-rate mortgage, so you’re taking a chance that mortgage rates won’t go up in the future.”

In fact, a common mistake people make is “they go for an ARM loan because it looks cheaper in the short term — the monthly payments are lower and the interest rate is lower,” says Parekh. But long term, “they may not be able to refinance if the rates go up after five, seven or 10 years when their ARM loan will adjust.”

You might also want to consider whether now is a good time to borrow against your home. As a rule of thumb, borrowing against your home tends to be more affordable than using other financial products, like credit cards or personal loans, particularly when interest rates are on the rise.

If you have large expenses like education or medical costs on the horizon, a cash-out refinance can be a good idea because it enables you to borrow more money than you currently owe on your home and to receive the funds in one lump sum. A home equity line of credit (HELOC), on the other hand, typically offers lower interest rates than other products like personal loans or credit cards because you are essentially guaranteeing the loan with your home as collateral; that can make it a smart financing option for expenses like renovations or repairs.

A couple reviews their mortgage before moving into a new home

If you’re thinking of buying a home…

While higher interest rates can make home buying more expensive because the monthly payments are greater, the resulting lower demand can potentially work in your favor in other ways. The NAR’s recent report found that inventory levels have risen substantially in the past year, from 2.0 months’ worth of inventory in March 2022 to 2.6 months’ worth in March 2023 — and because greater inventory means fewer buyers competing for the same properties, this can often give you more leverage when negotiating with a seller. If you compare the house prices from last year to now, says Parekh, buyers “are still going to find something for a little bit less money than what they would have found last year around this time.”

Similarly, according to Realtor.com data, time on market has generally gotten longer; the typical home spent an average of 67 days on the market in March 2023, which is 23 days longer than the same time last year. That’s another potential indicator of more opportunity for negotiation. And while “there are a number of buyers on the sidelines waiting for rates to come down,” says Arnaud Dufour, a senior mortgage banker at Citibank, that may not be effective. “There’s no guarantee that is going to happen,” he says, and “if and when it does, you’re going to see a stark increase in demand, and that’s going to push prices higher once again.” Because “the whole point of waiting to increase affordability will have backfired," he notes, the better option might be to buy now.

A realtor breaks down mortgage costs with a couple
Tara Mastroeni

is a freelance real estate and personal finance writer. Her work has been published on Forbes and Business Insider. You can find her at TMRealEstateWriter.com or on Twitter @TaraMastroeni.