The Katelayna Insider

The Rate Gets the Headlines. The Payment Tells the Story.

What buyers should know about mortgage rates, affordability, and the real cost of waiting

If you’ve thought about buying a home lately, there’s a good chance you’ve asked the same question everyone else is asking: What are mortgage rates right now?

It makes sense. Mortgage rates have been one of the biggest real estate stories for the past few years, and even a relatively small change can affect what a buyer pays each month. The problem is that we’ve become so focused on that one number that it can start to feel like the mortgage rate alone determines whether it’s a good or bad time to buy.

It doesn’t.

The rate you see in a headline isn’t necessarily the rate you’ll receive, and even the rate you receive doesn’t tell you what it will actually cost to own the home. Your loan amount, down payment, credit, loan program, property taxes, homeowners insurance, mortgage insurance and other factors all contribute to your monthly payment.

That’s why I think there’s a better question buyers should be asking: What does this house actually cost me each month, and am I comfortable with that number? A Half-Percent Sounds Small Until You Do the Math

Let’s use a simple example. Say you’re buying a $300,000 home, putting 10% down and financing $270,000 with a 30-year fixed mortgage. Looking only at principal and interest, here’s approximately what happens as the rate changes:

Interest Rate

Approx. Monthly Principal & Interest

6.0%    $1,619

6.5%    $1,707

7.0%    $1796

7.5%    $1,888

That difference matters. Going from 7% to 6.5% would save roughly $89 per month in this example. Over time, that adds up, so I’m certainly not suggesting buyers should ignore interest rates. What I am suggesting is that we put the rate back where it belongs: as one part of the equation instead of the entire equation.

What If We Changed the Price Instead?

This is where the conversation gets more interesting. Imagine you decide not to buy because you’re waiting for rates to drop half a percentage point. If nothing else changes, that lower rate could absolutely improve your payment. But nothing says everything else will stay the same while you wait. Home prices can change. Inventory can change. Competition can change. A home that has been sitting long enough for a seller to negotiate today could be competing with multiple buyers in a different market.

Of course, the opposite could happen too. Prices could soften, inventory could increase or rates could fall further than expected. None of us knows with certainty what the market will look like six months or a year from now.

That’s why I’d rather look at the opportunities that actually exist today than base a major financial decision on a prediction. Sometimes that means negotiating the purchase price. Sometimes it means asking for seller-paid closing costs. In the right situation, seller concessions may even help with the cost of an interest-rate buydown, depending on the loan program and lender requirements.

A lower mortgage rate has value, but so does buying the home for less money or keeping more cash in your pocket at closing.

The National Mortgage Rate Isn't Your Mortgage Rate

When you hear that mortgage rates are at a certain percentage, it doesn’t mean everyone applying for a mortgage that day receives that rate.

The rates you see reported nationally are benchmarks and averages. Your actual rate can depend on your lender, loan program, credit profile, down payment, loan structure, points and other factors. Two people buying similarly priced homes during the same week can receive different loan offers. That’s also why comparing lenders can be important. Buyers can spend weeks watching to see whether the national average moves by an eighth or a quarter of a percentage point while never comparing the actual loan options available to them.

The number you hear on the news is useful for understanding the overall market. The Loan Estimate sitting in front of you is considerably more useful for understanding your purchase.

You’ve probably heard the phrase “marry the house, date the rate.” The idea is simple: buy the home you want today and refinance the mortgage later when rates come down. There is some truth behind it. Homeowners refinance their mortgages all the time, and if rates eventually fall enough, refinancing may reduce the monthly payment. The problem is that the phrase can make refinancing sound much easier and more certain than it actually is.

For starters, refinancing isn't free.

A refinance is essentially a new mortgage, and getting that new mortgage can come with costs. Depending on the loan and lender, there may be lender fees, appraisal costs, title-related expenses, recording fees and other closing costs. Even when a lender advertises a “no-closing-cost refinance,” it doesn’t necessarily mean the costs vanished. They may be offset through the interest rate or handled another way within the loan.

That matters because getting a lower rate doesn’t automatically mean refinancing makes financial sense. Suppose refinancing costs $4,000 and lowers your payment by $100 per month. It would take about 40 months just to recover the cost of refinancing. If you sell the home before reaching that break-even point, the refinance may not have saved you money at all.

There’s another part of this conversation that matters just as much: nobody can promise that you’ll be able to refinance later.

We don’t know when rates will fall, how far they’ll fall, what your home will be worth at that point, what your financial circumstances will look like or what lending requirements will be in place. That doesn’t mean refinancing is bad. It means refinancing should be evaluated when the opportunity actually exists, using the numbers available at that time.

If the home and payment make sense for you today, and rates eventually fall enough that refinancing saves you money after considering the cost of doing it, that can be a great opportunity. But a future refinance shouldn’t be the thing that makes today’s payment affordable.

So, Should You Wait for Rates to Drop?

There isn’t one answer that works for every buyer.

For some people, waiting makes sense. If the homes you want don’t fit comfortably within your budget today, there is nothing wrong with waiting. Buying a home because someone tells you that rates will eventually come down isn’t a good reason to stretch your finances.

For someone else, buying today may make sense. There may be less competition for the kind of home they want, a seller may be willing to negotiate, or they may simply find the right home at a price and payment that comfortably fit their budget.

Those two buyers can look at the exact same housing market and make completely different decisions, and both decisions can make sense.

That’s why I don’t think the most important question is “What are mortgage rates today?” The better questions are what monthly payment you’re comfortable with, what you can realistically buy for that payment, how long you expect to own the home and whether buying right now makes sense for your life.

If the numbers don’t make sense, we don’t need to force them. If they do, then we can start talking about the house.

The rate will always get the headlines. Your payment is the number you actually have to live with.

This article is for general informational purposes only and is not financial or lending advice. Mortgage rates, loan costs, programs and qualification requirements vary by borrower and lender.