Interest Rates are on the Rise
Interest rates, while still near historic lows, are rising and buyers should be concerned. Interest rates are one of the major factors affecting how much home buyers can afford.
First look at the graph below to see how much interest rates increased in 2013.
As you can see, last year interest rates rose by about one percent. What should we expect interest rates to do this year?
Experts expect about another one percent increase in 2014. Now most importantly how does this affect home buyers and their purchasing power?
The graph above shows that with a one percent increase from 4.5% to 5.5% in order to keep the monthly mortgage payment the same, a buyer would need to reduce the price of the home purchased by 10%. This holds true regardless of price; a one percent increase in mortgage rates reduces purchasing power by 10%.
Conclusion, if you are planning to buy a home buy it sooner rather than later. You will be able to afford a higher priced home or purchase the same home with a lower mortgage payment than if you wait.
To get the best financing on your home purchase, contact us. We guarantee that no lender will be able to provide better terms than our lender. If we are wrong, we will pay your closing costs.