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SPOILER ALERT
Interest Rates Are Rising. Now Is The Time To Move, Before Higher Rates Sink Your Plans
 The days of record-breaking low interest rates are behind us. In recent months, as the economy and housing have recovered steadily, rising interest rates have followed. If you've had your eye on buying a home, refinancing your current loan or moving up to a new home, you may want to make a move now -- before interest rates rise further and affect how much you can afford.
A half-point or one-point interest rate change may not sound like much, but take a look inside to see how an increase affects your spending power. It doesn't take much variation in interest rates to drive up your monthly payment from the optimistic "comfortable" into the disappointing "not doable" range.
In this SPECIAL REPORT we take a quick look at your buying power at different mortgage amounts and mortgage rates. Check out the table on page 2 to really see how payments climb at different mortgage amounts and different interest rates. You may be surprised at how much you can still afford today compared with tomorrow's potential interest rate increases.
If you have questions, please contact us. We're standing by to connect you with a top-notch local mortgage professional who can help put a fine point on your specific situation. And, of course, we're here to help you reach your real estate goals, too.
Interest Rate Increases Change Affordability
As illustrated in the table (page 2), the difference of .5% interest on a $150,000 mortgage can add $40 to $50 to your monthly payment. On a $250,000 mortgage, your monthly payment can jump approximately $70 per .5% interest increase. It may not sound like a lot, but it can quickly add up, eating into your daily budget -- and impact the purchase price of the home you can afford.
More Home For Your Money
One benefit of a lower interest rate is that you can afford more home for your money, which is especially important if you're looking for a bigger home or a home in a particular high-cost area. If you have been looking at homes in a certain price range, and interest rates continue to rise, you may not be able to qualify to buy one of those same homes for the same mortgage with higher interest rates.
Get That Home You Always Wanted
Additionally, if there's a home you've had your eye on and you can finally afford it, act now. If interest rates rise further, you may be unable to purchase that same home later.
Qualify Easier When Interest Rates Are Low
With lower interest rates allowing you to afford more home for your mortgage-payment dollars, you're also likely to qualify for the mortgage more easily now than after interest rates rise. For example, if you qualify for a mortgage up to $275,000 at current interest rates, but the home you're looking to purchase will only require you to take out a $250,000 mortgage, you're more likely to qualify for this lower mortgage amount since it's not stretching your lender-calculated housing budget. If interest rates move up, that same mortgage is going to cost you more and may strain your ability to qualify for it.
Home Prices Tied To Interest Rates
What if home prices go down, you may ask. Lower prices, in fact, are often not enough to offset the higher cost of the mortgage. Here's why: If home prices drop 10%, that price-decrease savings is erased by just a 1% increase in interest rates. For example, a home you buy today with a $150,000 mortgage at 4% interest would cost you $716 monthly (principal and interest) whereas a home with a $135,000 mortgage (10% decrease = $15,000) at 5% interest would cost you $724 monthly. So at a higher rate, you would be buying a lower-priced home, but paying more each month for it.
Points To Reduce Interest Rate
If you miss the boat and interest rates rise, you still have an option (that costs money) to reduce your mortgage interest rate. Ask your lender if you can pay discount points on your mortgage. One point equals 1% of the mortgage loan total. If your mortgage amount is $200,000, one discount point would cost $2,000 and could reduce your interest rate about 1/8th of a percent. Check with your lender for more details to save money over the entire term of your loan.
Shorter Terms Lower Interest Rate
Reducing the term of your loan can also lower your interest rate. Fifteen-year and 20-year fixed-rate mortgages generally have lower interest rates than 30-year fixed-rate mortgages (although the shorter term means a higher monthly payment). Adjustable-rate mortgages (ARMs), on the other hand, often have lower interest rates to start, but beware, as the interest rate on an ARM could end up being higher, after adjustments, than currently available rates for fixed-rate loans.
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