It's no secret that mortgage interest rates are going to rise this year, probably sooner than later, but will that hurt the real estate market? Many of todays home buyers have never seen a 12 or 14 percent interest rate except on a credit card, but there was a time not that long ago that this was normal. Home buyers have been extremely fortunate over the past several years to see mortgage rates at all time lows. That cannot last forever, so as the economy grows rates will rise. Not to an outrageous level, but the days of 4% are in the past. Expect to see rates surpassing 5% and heading toward 6% in the year ahead. Will this hurt the real estate market? Only for a very small number of home buyers, mostly 1st time buyers who have a limited amount of cash for down payment, settlement fees, etc.
This is a breakdown of what principal and interest would cost monthly based on a $200,000 loan and a 30 year mortgage. At a interest rate of:
4.5% - Principal and interest= $1014.00
5% - Principal and interest= $1074.00
5.5% - Principal and interest= $1136.00
As you can see 1 percentage point on a $200,000 loan is equal to $122 per month or $1464 per year.
Now that I have this information what advice do I give to my clients? Hurry and buy now before rates rise? Wait and see what the market will do? Sell now? Sell later? Of course, I would like my clients to move as quickly as possible, but what is best for them? I need them to know I'm looking out for their best interest.