Rising Interest Rates Will Affect Mortgage Eligibility for Many in 2021

The U.S. economy was hit hard by the effects of the pandemic, but its full resurgence is expected toward the end of 2021. Until recently, mortgage rates have been at near-record lows. This has been a driving factor in the rapid appreciation of home values in many areas of the country. However, now that the economy is expected to rebound strongly, this is expected to change.

Specifically, the rate of inflation could increase substantially throughout 2021. This will put upward pressure on mortgage interest rates. In fact, interest rates have already climbed slightly over the last few months, and this trend could gain steam. Many homebuyers are on the cusp of qualifying for a mortgage loan with today’s interest rates, so even a modest rate increase could impact their ability to become homeowners. Likewise, rising interest rates will impact the benefits of refinancing and the ability for some homeowners to qualify for a refinance loan.

However, some experts point to the fact that low interest rates are not the only driving force behind the strong housing market. For example, many younger adults who have been sitting on the sidelines are now at a stage in their lives when they want to purchase a home and settle down. Even applicants who continue to be able to afford a higher interest rate, however, may see their upper loan amount limit capped at a lower level because of the higher rates. In markets that already have high housing prices relatively, the impact of a higher interest rate may be much more significant.

What does this mean for your purchase or refinance plans? Because interest rates are expected to continue marching higher over the year, the best time to get serious about moving forward with your plans could be now. Connect with your mortgage lender today for more details about current rates and to get prequalified for financing.

Contact one of our loan consultants to learn more.