Does a .25% rise in interest rate really matter?

By
Real Estate Agent with Keller Williams Silicon Valley Cal BRE# 01358433

 

 

 

Does a small increase in interest rate really matter?

 

 

This is a fair question.  The Fed recently raised the rate for the first time since the financial crisis.  The raise was only a .25% so what is the big deal?

 

 

Well, the Vice Chair of the Fed stated that 4 rate increases would be “in the ballpark” and the article also analyzed the Fed’s projections and predicted a quarter point  increase each time.    That would mean a full 1% increase in 2016.

 

 

Let’s just look at simple numbers to make the calculations easy to illustrate.  

 

 

Today’s rate for a 30 year fixed is 4.1% with a large lender.

 

 

If a buyer were to get a loan of $800,000 to buy a median priced home in Santa Clara County ($1,000,000),  over those 30 years, the total interest paid over the life of that loan will be $591,611.

 

 

At 5.1% the total interest paid will be $763,695.  

 

 

The difference due to  that 1% increase will be $172,084 for the life of that loan.  Yes, nearly enough to cover the down payment.   

 

 

This will help explain why buyers are out there now gobbling up properties in Silicon Valley so that they can lock in their historically low interest rates, and also why we are seeing an inventory shortage and have been for a while. 

 

 

So does a small increase in interest rate really matter?  I think the answer is self evident.  Movements in interest rates DO MATTER. The real question is:  Does it matter to you?

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California Santa Clara County
Tags:
home buyer
mortgage rates
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silicon valley market conditions

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Rainmaker
645,690
Phyllis Lerner call 914.438.7556
Corcoran Legends Realty - Tarrytown, NY
Corcoran Legends Realty

One small increase won't matter... but several small ones in a row will... especially if wages do not keep pace...

Jan 07, 2016 11:07 AM #1
Rainmaker
3,985,587
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

Interest was a lot higher in the hay days of our Profession (early 2000's).

People actually saved money when they got a return.  Most of my clients then had a few dollars on the bank compared to today

Jan 07, 2016 12:53 PM #2
Rainmaker
179,057
Steve Mun
Keller Williams Silicon Valley - Santa Clara, CA
Silicon Valley Realtor

Phyllis.  Yes, the article author looked over the Federal Open Market Commitee members' forecasts for economic conditions and guestimated. 

 

Wiliam.  I have spoken with people who were selling in the late 70s and 80s and they told me about the nose bleed rates..... 

 

 

Jan 08, 2016 07:48 AM #3
Rainmaker
4,437,657
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Steve, you are right, it does make a difference to MOST buyers, unless they have short term plans.

Sep 03, 2016 02:58 AM #4
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Rainmaker
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Steve Mun

Silicon Valley Realtor
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