With Feds meeting every time many of the home buyers in the Northern Virginia real estate market are concern about the rising interest rate. Does the rising interest rate truly affect the purchasing power of the buyers and their monthly payments?
Here is a simple comparison of only the Principle & Interest assuming a 20% downpayment on a conventional loan and the payments:
Scenario 1: Interest rate 4.25% is currently offered rises to 4.5% and 4.75% on a $500000 home with a 20% down payment:
Analysis: Yes, if the prices remain stable it does reduces the purchasing power of the home buyers in the Northern Virginia area.
Scenario 2: Interest Rises However Prices drop. Now the home that was listed at $500000 is sold for 3 Different price point:
Analysis: We all want this scenario since reduction in the sales prices does help the consumer with their monthly mortgage payment.
However the long term effect may not be good since this may cause lack of confidence in investing in real estate market. If the market adjust a bit (as for example $475K) with the rise in the interest rate the consumers may be open to absorption of the monthly payment.
Local economy and other factors have a huge impact on the local real estate market place.
Disclaimer: Please speak to your loan officer about qualification,understanding your mortgage and monthly payments.
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