An easy to understand explanation of what an interest rate increase means for future home buyers. 2 minute read.
The Federal Reserve has been talking about increasing interest rates in December. Most experts are reporting that there is a 70% chance this will happen. As of the day this article was written, average rates are 3.5% for a standard 30-year fixed loan. Below you can see what even increasing to 4% will do to a monthly payment:
Home Price: $200,000
Down Payment: $40,000 (20%)
Monthly Payment at 3.5%: $718.98
Monthly Payment at 4.0%: $764.37
That extra $45.39 a month is only based off of a 0.5% rate hike (and doesn’t include taxes or insurance). Though many buyers become fixated on a home’s sale price, it’s the monthly mortgage payment that decides what they can afford. That small rate increase is an extra $16,340 over the course of that mortgage. So if you’re on the fence about whether you want to buy a home then I recommend taking advantage of the current rates.
Though buying now is better, the silver lining for those who can’t is that an interest rate hike should slow the currently increasing home prices. If the scales eventually tip and we see a local/national buyer’s market, then the rate hike might balance out. If you are able to buy now though, you should; gambling on a future market isn’t as reliable as the rates that we know exist now.
*For more information regarding interest rates or where the real estate market is expected to go in the future, please contact Adam Somers or a member of the DiMora Team.