Understanding Mortgage Rates: Navigating the World of Home Financing

Understanding Mortgage Rates: Navigating the World of Home Financing

Everyone in the real estate industry is talking about mortgage rates. The average 30-year mortgage rate is back above 7%.

As a result, many potential buyers and sellers remain on the sidelines in the Miami area. Active listings are down and fewer shoppers are on the market for a new house.

While there are other factors, like home prices, mortgage rates remain the driving force. Roughly 62% of mortgage holders have a rate lower than 4%. Nearly 92% have a rate lower than 6%.

Read on to learn how interest rates affect real estate investments near Miami. Explore how to navigate a difficult home lending market.

How Do Mortgage Rates Affect Your Investment?

If you rely on home lending to purchase a home, rates can have a big impact on your return on investment (ROI). For starters, higher rates diminish your purchasing power.

A higher proportion of your monthly budget goes towards financing expenses instead of principal. In turn, this limits the home price that you can afford.

Will Mortgage Rates Decline?

Economists do expect mortgage rates to decline in 2024 and 2025. All eyes are on the U.S. Federal Reserve to determine when rates will fall.

A few months ago, the consensus was that the Fed would start cutting rates in March 2024. However, the forecast has slid out a few months as economists digest better-than-expected jobs and inflation data.

Once conditions are right, experts anticipate the Fed cutting rates multiple times. While rates may not go back to 3%, they should be more favorable than the current 7% average.

It is important to note that the low interest rates that Americans have become accustomed to are unprecedented. The Fed started an aggressive quantitative easing plan in response to 2009's Great Recession. The objective was to inject liquidity into the market and encourage consumer spending.

The end result was record-low mortgage rates. Today's rates hovering near 7% are closer to the historical actual than rates over the past decade.

How Can You Beat the Rates?

Cash is king in the current real estate market. The less you borrow, the stronger your buying position will be. However, buying in cash is easier said than done for many newer investors.

You can shop around for the best mortgage rates. Some savvy investors are borrowing from other sources, like a retirement account, to get better rates. Others belong to a credit union or use more favorable programs like mortgages backed by the Department of Veterans Affairs or USDA.

Another option is to purchase discount points to lower your rate. Here, you pay interest upfront to secure a lower rate. This may be an option if the math makes sense.

Your Guide to Real Estate Investments and Mortgage Rates

You now have a firm understanding of how mortgage rates affect real estate investments near Miami. While the rates situation seems poor, historically they are not high. Dealing with higher rates is likely part of the new normal.

PMI Sunshine State has the experience and knowledge to help investors navigate a difficult real estate market. If you need assistance with your real estate investments, contact us at PMI Sunshine State today to speak with an expert.