Question

What is the current rate (approximately) for a 30-year fixed-rate mortgage? How will rising or falling interest rates affect a future home purchase? In what situation might you prefer a variable rate mortgage?

Answer 1

The current rate for a 30-year fixed-rate mortgage is approximately 4% to 4.5%.

Property values are determined by the cost of capital and the availability of capital. Interest rates significantly impact financing cost and mortgage rates. These in turn, impact property values. If mortgage rates rise for a long period then there may be weak demand which can lead to lower increase in property values. Generally speaking, interest rates do not directly impact housing prices.

As can be seen from the chart above, the Fed can raise the interest rate, and the 10-year yield may not even move higher. So, the mortgage rates may not increase necessarily even if interest rates go up.

Variable rate mortgage is preferable if one wants to know with certainty how much amount they will to payment periodically to cover their mortgage. That certainty is not there with variable rate mortgages as the amount to be paid, changes with the change in rate.Mortgage preference also depends on how much risk you can afford. It may be so that the variable rate mortgage has lower payments initially but can increase beyond your maximum paying capability when interest rate changes. So, all these factors are to be taken into account before deciding on a fixed or variable rate mortgage.