After the past several years, of record low, interest rates, and therefore, historically low, mortgage rates, many individuals, have begun to believe, that is the norm, when it has been anything, but! For many years, mortgage rates were approximately 8.5%, but, of course, we also, witnessed extended periods, where banks, also, paid between 4% and 5%, on deposits. In the past few years, we experienced, both, an extremely low rate, in both areas! In the past few months, the Federal Reserve has begun, raising these numbers, and guidelines. and, the numbers, for these, has begun, creeping, up! With that in mind, this article will attempt to identify, consider, discuss, and briefly review, 4 issues, to consider, in terms of how this, might affect, buying and selling a home.
1. Relationship between rising interest rates, and mortgage rates: The higher the interest rates, the more, people pay, for their mortgages. How might this affect the housing market, when it becomes more expensive to pay, the monthly costs, associated with owning a home? Depending on how much it rises, and how quickly, we will have to watch, observe, and hope, it does not, unsettle, the market!
2. Higher mortgage rate = higher payments: Since the vast majority of home buyers, depend upon a mortgage, to afford to purchase their home, when these, increase, fewer people might qualify, for loans, and those, who do, might only be able to afford lower – priced ones, and/ or the selling prices of houses, might decrease, over time!
3. Higher payments = Less home, for the buck: When rates rise, the monthly payments increase! The net effect of this, may be, buying, far less home, for – the – buck! Americans must pay keen attention, to what’s going on, so they might be beware, and prepare, accordingly!
4. Qualifying: The formula used by lending institutions, includes many variables, including income, overall debt, housing debts, and a ratio, between, debts and the monthly amount of one’s mortgage, including principal, interest, escrow, and real estate taxes, versus one’s income. When rates rise, it makes these monthly costs increase, and thus, many will end up, qualifying, for far less, than before. In addition, if one owned an adjustable loan, they will witness significant increases, in their monthly expenses.