Interest Rates That Rise Diminish Affordability of Houses
Interest rates that rise diminish affordability of houses is an interesting article that gives some insight into the home buying process and the effects of being a home owner. For more specific information, continue reading below.
Today, house prices are lower than in years and interest rates are at historic lows. The affordability of housing today is an incredible opportunity for many buyers who previously could not afford a home. This combination of factors allows buyers to be able to afford houses that not long ago were financially out of reach. However, interest rates will rise, sooner or later. Experts are predicting interest rates will rise to as high as 5.5% within a year. Mortgage buyer Freddie Mac said Thursday the rate on the 30-year loan increased to 4.47% from 4.42% last week. The average on the 15-year fixed loan rose to 3.51% from 3.43%.
You may calculate your own mortgage payments here if you like.
For example, a buyer today qualifies for a home that costs $200,000. If the interest rates go up by 0.25%, that same buyer now qualifies for a house that costs $195,000, thus putting the $200,000 house out of range. If the interest rates go up 0.5%, the same buyer now qualifies for a house that costs $190,000, putting the $195,000 house out of range. If the interest rates go up a full 1.0%, that same buyer now qualifies for a house that costs $180,000. The $200,000 house is now very far out of reach for the buyer whose qualifications stayed the same, the only change was the increased interest rates for a mortgage.
Take a look at houses for sale in Palm Harbor, FL between $200,000 and $250,000 for example. If a buyer just qualifies for any price range, and finds the perfect house in that price range, then interest rates rise, what was the perfect dream house may suddenly become nothing more than a dream unfulfilled.
The mortgage payments would stay just about the same, however the purchasing power decreases by 10% for every 1% increase in interest rates. Take a look at our home buyer tips to help you make the best possible buying decision.
Thus, as interest rates go up, and the mortgage payment remains stable, the value of the home one can purchase goes down. If a buyer chooses to wait until a better house comes along, they may not be able to qualify for a loan for it.
Comments(0)