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It’s easy—when you’re ready to buy a home and apply for a mortgage loan—to become obsessed with interest rates. How high will the average interest rate on a 30-year fixed-rate mortgage loan rise in 2016? How about on a 15-year loan?
The truth is, no one knows what interest rates will do in 2016.
This isn’t unusual. No one knew what rates would do last year, either. Remember the predictions that mortgage interest rates would soar in 2015? Those predictions turned out to be incorrect. In the fourth quarter of 2015, the nationwide average interest rate on a 30-year fixed-rate mortgage was still under 4%. And the average rates on 15-year fixed-rate mortgages were under 3.5%.
There’s no guarantee that rates won’t rise throughout 2016. But this is important to remember: As 2016 kicked off a new year, average interest rates were still near historic lows. So even if rates do rise this year, they’ll have to jump significantly not to be nicely affordable by historic standards.
Outlook: Small changes in interest rates won’t impact your ability to afford a mortgage by much. If you take out a $150,000 30-year fixed-rate loan at 3.8%, your monthly payment—not including taxes and insurance—will be around $700. If the rate on that same loan increased to 4.1%, your monthly payment—again excluding insurance and taxes—would rise to $724. That’s a difference of about $24 a month or about $288 a year.
The message here? Yes, it’s better to buy while interest rates are low. But don’t let an obsession with rates keep you from pulling the trigger on your dream home this year. The odds are high that mortgage rates throughout 2016 will remain at attractive and affordable levels.