Many economists and market watchers are predicting that interest rates will rise in 2014. Generally, the consensus estimate seems to be that the average mortgage rate will increase from about 4.5% now to about 5.%% by the end of the year.
If it happens, that 1% rise would raise the monthly payment on a mortgage by over 12%.
The same increase, 1% higher than current levels, cuts your purchasing power - the size of the house you can afford to buy - by 10%.
Mortgage interest rates are trading around 4 1/2%
- At 4.5%, the monthly payment per $100,000 of principal loan amount on a 30-year loan is $506
- At 5.0%, the payment is $536
- At 5.5%, the payment is $568
So, if interest rates rise 1.0% this year, the same $100,000 borrowed will cost $62 more per month.
KCM produced some nice charts showing the changes for different dollar amounts and interest rates.
Start in the lower right corner. Go straight up to see how much more your monthly mortgage payment will be for a given rise in rates. Then follow the highlighted boxes to see how much less of a house you can afford when interest rates rise.
For example, if you can afford a $2,044 mortgage payment, a 1% rise in rates will cut your purchasing power by 10%, from $400,000 to $360,000.
Here's KCM's $400,000 chart showing the
Effect of interest rate changes on a $400,000 mortgage
Here's KCM's $600,000 chart showing the
Effect of interest rate changes on a $600,000 mortgage
Here's KCM's $1,000,000 chart showing the
Effect of interest rate changes on a $1,000,000 mortgage
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