When it comes to buying a home, the first rule is “location, location, location.” However, the adage “timing is everything” is just as important. Buying a home at a certain time of year has advantages over other times because of a number of factors. For example, buyers typically like to go house hunting in the warmer months, so home prices may rise in anticipation of a greater number of buyers. In the colder months, fewer people are inclined to get outside and look for a home, so prices may decline to encourage buyers. Mortgage rates are another factor affected by seasons. For example, mortgage rates typically fall during the summer months to attract buyers.
Ups and Downs
Although traditionally mortgage rates fall in the summer, that isn’t always the case so buyers should be aware of what the current trends in the market are. It’s important to be aware of what’s happening in the housing market around the time of purchase because if mortgage rates are high, it may be wise to wait until they fall again. Mortgage rates will affect how much a buyer ultimately pays for a home. A lower mortgage rate means a buyer could afford a better home for the same price as a lesser home if rates are higher.
Mortgage rates typically sit around 3% of the loan amount, although they can go much higher. Currently, rates are approaching 4% after a summer of lower rates.
Federal government agencies track mortgage rates over the course of the year and provide averages that represent what is trending. The Federal Housing Administration (FHA) has noted that April is usually the month with the lowest mortgage rates, followed by May and August. Although mortgage rates will rise and fall throughout the calendar year, dropping lowest as summer draws near, the fluctuation in the percentage is not very large. In fact, more recently, mortgage rates have gone up and down within the usual 3% margin.
Although there are seasonal trends in mortgage rates, such as rates falling lower in the summer months, other factors affect mortgage rates as well. Some examples include the type of loan (such as an FHA loan vs. a conventional loan), the term of the loan, anything additional added onto the loan contract and whether or not the loan has a fixed rate. Having a loan without a fixed rate means that mortgage rates can be subject to the rise and fall of the market. Getting a fixed rate when rates are low is considered to be the most desirable.
It’s important for home buyers to understand how mortgage rates are affected by each factor because it may influence the decision of when to buy, which will influence how much money is spent paying on interest rates rather than paying down the principal amount.