Would You Sign a Mortgage at Over 5.5%? 7 in 10 Home Buyers Say They Won’t

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You may want a low mortgage rate, but it’s important to be realistic about your borrowing options. Read on to learn more. 

In 2020, in the wake of the pandemic, mortgage rates dropped to record lows. Back then, you could sign a 30-year mortgage at or around 3%. And so not only did many prospective buyers rush to try to purchase homes, but many existing homeowners rushed to refinance their mortgages.

But mortgage rates began rising sharply from their pandemic-era lows in 2022. And since the start of 2023, 30-year mortgage rates have been hovering in the 6% range.

Historically speaking, that’s not actually so high. In fact, Freddie Mac says the average mortgage rate going back to 1971 is 7.75%.

But recent research from John Burns Research and Consulting found that 71% of home buyers insist they won’t sign a mortgage at a rate of over 5.5%. And 62% of buyers believe a “normal” mortgage rate is below 5.5%.

Unfortunately, though, it doesn’t look like mortgage rates are going to dip below the 6% mark anytime soon. And that’s something would-be buyers need to come to terms with.

We’re in a different environment

The reason today’s mortgage rates might look high or even unreasonable is because borrowers got used to the record-low rates that became available in 2020 and lasted through early 2022. But at this point, we’re in a different borrowing environment. And it’s best that prospective home buyers accept that and find ways to cope with today’s mortgage rates.

Of course, mortgage rates can fluctuate from week to week and month to month. But generally speaking, they’ve been stuck in the low- to mid-6% range so far all year. And they’re likely to stay in that vicinity as 2023 moves along. So if you’re eager to buy a home but you’re holding out for mortgage rates to get to 5.5% or below, you might be waiting a long time.

That’s why a better bet is to run the numbers and see if you can afford a home based on what mortgage rates look like at present. If you’re able to purchase a home you’ll be comfortable in and keep your total monthly housing costs to 30% of your take-home pay or less, then signing a mortgage at, say, 6.4% isn’t necessarily a terrible thing.

What you don’t want to do, though, is push yourself to buy a home at today’s rates if your monthly housing costs will exceed 30% of your pay or constitute a financial hardship. If today’s rates make it so that buying a home isn’t yet affordable, then your best bet is to wait.

You can always refinance

Mortgage rates are unlikely to plunge anytime soon. But in time, they could go down. And once that happens, you may have the option to refinance your loan to one with a lower interest rate, thereby slashing your monthly payments.

Unfortunately, signing a mortgage at over 5.5% might be a given these days. Even 15-year mortgage rates are averaging more like 5.75% today, according to Freddie Mac. So rather than fixate on that specific cutoff, instead, figure out what you can afford based on today’s borrowing conditions. If anything, you could always try negotiating a lower purchase price on the home you buy to make up for your higher borrowing costs.

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