Do Interest Rates Affect My Mortgage Payment?
Think interest rates don’t have an affect on home sales? For the past few years, mortgage rates have continued as historically low. So the reality, it’s not “if” the rate goes up but “when” the rate goes up. When they do go up, it could make a big difference for some buyers. Freddie Mac predicts that mortgage rates will be at 4.5% a year from now.
Even if buyers can afford a home with higher interest rates, it means higher payments. Higher payments equate to less money to spend on other things like furniture or improvements to the home or an unrelated purchase like a new car.
In short, you should be aware that when the rate moves 0.50% on a $250,000, the payment goes up by $70.66 a month. If it moves 1.00%, your payment goes up by $143.74 per month. During the entire term of the mortgage means paying over $50,000 more for the house!
The question in this situation is “How will you feel about having to pay more to live in the same house because you were not ready to commit?”
From a seller’s perspective, there’s the borrower who is absolutely maxed out as to what they can qualify for or a borrower who just refuses to pay a higher payment. When that’s the case, the buyer has to make a larger down payment. In the same example, a 0.50% increase in rate would require $14,873 more in down payment. Think about the consequences. That could make the purchase impossible or require the buyer to buy a lesser price home that will not have the same amenities. You can read here to get more details.
Mortgage rates have been low for so long that some people think that is what they should be. There are some economists who believe that the economy will not be strong again until mortgage rates are in the 7% range. Would that work for you in today’s market or would it be a better idea to consider purchasing now while rates are still low?
Want to do a little more investigating on your own? Click here to see how this type of scenario might affect you, go to the If the Rate Goes Up calculator.