Mortgage Rates Are at a 20-Year High. But Here's Why You Should Buy a Home Anyway

While rising rates aren't a good thing, they also don't have to be a deal-breaker.

It's hardly a secret that mortgage rates have gotten expensive this year. Whereas it was possible to sign a 30-year mortgage at under 3% last year, in 2022, that option went away. In fact, mortgage rates recently surpassed the 7% mark, according to Freddie Mac. And now, mortgage borrowers are looking at their most expensive rates since 2002.

As such, you'd think now would be a pretty bad time to buy a home. But it could make sense to move forward with homeownership plans -- even if it means paying a lot more to finance a place of your own.

Why you shouldn't give up on homeownership

Taking out a mortgage today is apt to cost you a lot more money than it would have last year. And unfortunately, even if you're a borrowing candidate with a strong credit score, you might still end up with a higher rate on a mortgage than you'd like. Throw in the fact that home prices are still up, and it's easy to see why buyers may be inclined to run the other way.

But remember, there are financial benefits to owning a home rather than renting one. When you own a home, you get to build equity in an asset that could gain a lot of value over time. And the sooner you start paying a home off, the sooner you can start building up that equity.

Also, perhaps renting a home is preventing you from doing certain things you want to do, like adopting a giant dog or painting your walls bright blue. And if that's the case, the sooner you become a homeowner, the sooner you get to call the shots.

Now you may be thinking, "But won't I be setting myself up for a financial nightmare if I buy a home today?" Not necessarily.

If you limit yourself to a home you can afford given today's mortgage rates, you can avoid a scenario where paying your mortgage is a struggle. As a general rule, your monthly housing costs, including your mortgage payment, property taxes, and homeowners insurance, should not exceed 30% of your take-home pay. So as long as you stick to that limit, you should be in a decent position to move forward with a home purchase, even with a higher interest rate.

You're not automatically stuck with the mortgage rate you lock in

Mortgage rates may be high today, but they could come down in time. And once that happens, you may be in a position where you can refinance your mortgage and lower your housing costs in the process.

A lot of people refinanced their mortgages during the second half of 2020, when borrowing rates plunged to record lows. And some of those people may have been paying a higher rate for years. So that's something to keep in mind when you think about signing a mortgage at 7%. It may not be the ideal interest rate to start out with, but you won't necessarily get stuck with it for 30 years, either.