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Ask the expert: are current mortgage rates too high?

February 15, 2011

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: I just missed on buying a house last fall when mortgage rates were really low. Now that they are back up above five percent again, how long do you think I should wait to see if they have another swing lower?

A: How quickly perceptions change! Current mortgage rates are at 5.05 percent. At just about any other time during the past 40 years, a 5.05 percent mortgage rate would have been considered an incredible bargain. Now though, with 30-year mortgage rates having spent much of the past two years below 5 percent, people are writing articles lamenting the end of an era because current mortgage rates are once again north of that mark.

If you can afford a house now and buying one fits with your plans, then here are three reasons you shouldn't wait for mortgage rates to dip back down:

  • There is no guarantee that mortgage rates will fall below 5 percent again. Until 2009, they had never done that before (at least not in the modern era), so don't hold your breath waiting for it to happen again.
  • Housing itself is relatively cheap. Remember, there are two components that determine your mortgage payments--the interest rate and the price you pay for the house. With home prices down in many parts of the country, you may not want to wait too long.
  • The main thing is whether you can afford a mortgage now. Whether you could have done better a few months ago is immaterial--water under the bridge.

The bottom line is that for most people, buying a house should be about obtaining affordable long-term shelter, not about trying to time an investment just right. If current mortgage rates cannot make housing affordable to you, it is a sign you need to wait and save more money, rather than a sign you should wait for lower mortgage rates.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to our "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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