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I was planning to buy a house next year with around 5% - 10% down, but I decided to step back a little, and instead of buying a house next year, I plan to wait paying all my outstanding debts (around $80k) and save for the 20% down payment (around $40k). This can take up to 5 years from now based on the current income that I am receiving. In this way, the only debt that I end up with is a car loan before buying the house. I think this is the perfect scenario.

What it worries me is that I am hearing around that mortgage rates will go up again soon, so I can lose the opportunity of getting a low-rate mortgage.

My question is: should I go back to my original plan and buy a house next year in order to avoid missing the low-rate mortgage, or should I stick with my new plan, and be almost debt-free, but with a probably higher mortgage rate?

Please note that I already have a small emergency fund in case something breaks on my apartment, and a bigger emergency fund in case of a bigger emergency.

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  • FED is going to raise rates and you can be sure when FED does that, all interest rates will go up. With 10% down-payment wouldn't you be getting a bad deal in terms of interest you pay ?
    – DumbCoder
    Aug 21 '15 at 16:19
  • I wouldn't anticipate mortgage rates going above 6% before 2020, which would still be considered extremely low from a historical perspective.
    – BobbyScon
    Aug 21 '15 at 18:14
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The market thinks there is a strong chance that the Fed will raise rates later this year. However, since mortgages are generally 15-30 years long the banks already need to include possible future rate changes when they figure out the rates they are offering today. What this means is that if the Fed does raise rates later this year mortgage rates may not change that much because they have already changed in expectation of the move. However, if that rate hike does not happen as expected rates could go down, maybe significantly.

Unless you know that Dr. Yellen is planning something different in the near future timing the move in rates can be futile.

Also, you likely qualify for a lower rate if you are debt free and able to put down 20%. Especially if you don't have to get mortgage insurance.

You will probably end up in a better place by putting your effort into finding a great house and shopping around multiple banks to make sure you get the lowest rate and fees you can when you are ready.

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