Mortgage rates recently posted an increase so steep, some financial experts called it a "catastrophic surge." As a homeowner who recently took advantage of the historically low mortgage rate of 2.75 percent, I got lucky. The surge in mortgage rates reminded me of other times when the winds shifted in our economy. I'm interpreting the sudden surge as a warning sign that mortgage rates are going to continue to climb in the next 5 to 10 years. According to a recent Motley Fool article, the recent rise in mortgage rates was among the largest ever. I'm spooked by the mortgage rate surge because I think it will have a dramatic negative impact on the overall economy. It is also forcing me to make decisions about my housing now and in the future.
Making a commitment to stay put
Even though I have an incredible mortgage rate, I have to give serious thought to the question of whether or not I want to stay in my home. I don't want to be a homebuyer when mortgage rates hit double digits. I purchased my first home when mortgage rates were about 7 percent. I don't want to go back to a situation in which I'm paying the same amount in interest as the purchase price of the home. I decided it's best to stay put at this time.
Planning for changing circumstances
Even though we have no reason to move right now, we may have to move for a job change in the future. I'm left trying to figure out if we should save our money in case we have to buy a home at double-digit interest rates or if we should pay down our current mortgage. The dilemma reminds me of the dot.com bubble when I wasn't sure whether to invest or save my money in cash and wait until stocks came down to more reasonable levels. I made the mistake of investing at the top of the dot.com bubble. When the stock market crashed, I didn't have the cash on hand to take advantage of the lower stock prices. If we had to move in a time of high mortgage rates, I'd rather have cash than a paid-off home.
Buying an investment home
If we are going to buy an investment property, we don't have time to wait. We already knew the mortgage rate on an investment property would be higher than the one on our primary home because the rate is always higher on an investment property. Every week we wait, it seems the quote I receive from our mortgage company is higher. At the same time, we are stuck because many of the foreclosures we have spotted in Florida have not gone on the market. Moreover, the banks are fixing up the properties and selling them for about 20 to 30 percent higher than at the bottom.
While it's true the mortgage rates are not at catastrophic levels, it's possible they will reach those double-digit levels within the next 10 years. Historically, housing values rise when mortgage rates rise. That means I'll be paying higher property taxes. I remember when mortgage rates were high in the 1980s. Not only were mortgage rates high, but prices in general were high. If mortgage rates continue to rise, it might bring back those retro days of high inflation. Along with the valley girls, leg warmers and shoulder pads, I don't want the inflation of the '80s to return.
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