What if Interest Rates Rise?
When is the best time to buy real estate? With attractive home prices and record low mortgage interest rates, many people consider now to be an excellent time to purchase a home or refinance a mortgage. But waiting to buy or expecting rates or prices to decline further may cost you.
In many instances, it will likely cost you more to rent an apartment than to make a monthly mortgage payment. The large number of home foreclosures in the market has forced many dispossessed homeowners to compete for a limited number of rental properties. This increased demand for rental housing in many areas of the country has precipitated a shortage that has provided a buying bonanza for savvy investors and first time homebuyers with cash and solid credit.
Though interest rates have been at historic lows for the last couple of years, they will not last. Consider that until very recently, the average mortgage interest rate between 1972 and 2010 was 8.92%. Think about how much more home you can purchase at today’s current rates around 4% vs the nearly 9% average rate of the recent past.
Interest rates will rise. When and by how much is still unknown, but postponing a purchase now may likely cost you more if you wait. When mortgage interest rates rise, monthly mortgage payments become more expensive. To illustrate the effect of just a 1% rise in interest rate, consider the following example. A buyer negotiating a 4%, 30-year fixed rate mortgage of $200,000 will have a monthly principal and interest (P&I)payment of about $955. If the buyer waits and the 30-year fixed mortgage rate increases to 5%, the monthly P&I mortgage payment will increase $114 to $1,069 per month….an increase of 12%!
As the interest rate increases, fewer people will qualify to purchase the home, thereby decreasing the demand for the home. Because of this, the price of the home may be forced to drop in order to attract a qualified buyer. To illustrate – consider again our example of a $200,000 30-year fixed rate mortgage at 4% with a monthly P&I payment of $955. If this payment represents the highest monthly payment the buyer can afford, and the interest rate increases just 1% to a 5% rate, the largest mortgage the buyer can now afford would have to drop $22,000 to about $178,000….a decrease of 14% in purchasing power!
WHAT IF INTEREST RATES RISE?
AFFECT OF ADDITIONAL $10,000 LOAN AMOUNT
If you want to see how much home you can afford to buy in today’s market, call Gregg Anderson, Senior Loan Consultant, at imortgage at 541-944-2723.
Gregg is consistently the most knowledgeable, thorough and responsive, mortgage loan broker I’ve ever worked with. Gregg's expertise and attention to detail in the industry are unparalleled. He has proven to me time and again that he can put loans together when other loan officers could not. As a testament to Gregg's skills and personal integrity, I not only highly recommend him, but I personally refer clients to him on a regular basis without hesitation.
Gregg Anderson , Senior Loan Consultant
NMLS ID 385008 Earth Advantage "Green" Certified
3389 Crater Lake Hwy. Medford, OR 97504
Direct: (541) 944-2723 FAX (toll free) 877-819-0454
Please contact me for current quotes, questions, or to otherwise assist you. Our average closings are 21 days!
Imortgage is providing this information for general guidance only, not legal advice. Rates, terms and availability of programs are subject to change without notice. Licensed by the Division of Finance and Corporate Securities ML 5010.
If you would like information about available real estate listings in the Rogue Valley, or would like to consult about real estate in general, please contact Tod Hunt, Broker at 541-778-1114 or via email at firstname.lastname@example.org