The dream of owning a house can turn sour if outside events conspire against you, and for many people, this scenario seems to come true.
As interest rates rise and house prices fall, what can people do to prepare for the pinch?
Check your current offer
Before you panic, you should check the terms and conditions of the mortgage package you currently owe. We are always in a seller’s marketbut it makes sense to focus on your own situation.
If it’s a fixed rate package and there’s still some time left before the end of the period the fix was agreed to, short-term fluctuations shouldn’t be too much of a concern.
On the other hand, if you are on a variable rate agreement, then you are exposed to peaks of interest and might want to think about fixing if possible.
Calculate your repayment options
Whatever your situation, it’s wise to consider what might happen to your mortgage repayments if rates continue to rise and stay high for the foreseeable future.
You can try loanDepot’s amortization calculator to determine what difference even a small rate change will make to monthly repayments.
With this information in hand, it will be easier to rebalance your household budget according to any anticipated price increases. Likewise, you can leverage this unbiased data to better assess alternative mortgage packages you could switch to if needed.
It might seem odd to suggest overpaying your mortgage when rates rise, but if you have a fixed-rate mortgage and have some leeway in your personal finances, it might make sense.
The idea is that by paying off more of your mortgage now, you’ll have a smaller total amount owed when your term agreement expires. This means that if you become exposed to higher interest rates in future years, they won’t have as much of an impact.
Estimate your property
While you may have seen stories in the media about house price growth slowing and even reversing in some areas, that doesn’t mean the same is true for your particular home. .
You can use online appraisal tools to estimate the current value of your home and to see how that has changed over the course of your ownership.
However, it’s not a bad idea to ask a local real estate agent to provide their own expert appraisal, which will be far more accurate than anything an algorithm-based website can muster.
Even if you don’t act on the information you receive, simply knowing your property’s value is a way to better plan what you might do if the economic screws continue to tighten.
Strengthen your credit score
Once you’ve purchased a property, you should always pay attention to your credit score, as this is crucial if you want to refinance your home and have access to the most competitive rates on the market.
It’s a good idea to improve your credit score by paying off other debts, like credit cards and car loans.
It’s undeniably a scary time for homeowners, but the fact that you’re reading this means you want to do something about the larger situation facing the world, rather than stick your head in the sand.
Planning for rising interest rates and falling property values right now is the best way to weather the storm. It might even lead you to realize that your current mortgage contract isn’t very good and that a refinance is a good idea.
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