Mortgage rates have increased significantly
in recent weeks. And that may mean you have questions about what this
means for you if you’re planning to buy a home. Here’s some information
that can help you make an informed decision when you set your homebuying
The Impact of Rising Mortgage Rates
As mortgage rates rise, they impact your purchasing power by raising
the cost of buying a home and limiting how much you can comfortably
afford. Here’s how it works.
Let’s assume you want to buy a $400,000 home (the median-priced home according to the National Association of Realtors is $389,500).
If you’re trying to shop at that price point and keep your monthly
payment about $2,500-2,600 or below, here’s how your purchasing power
can change as mortgage rates climb (see chart below). The red shows payments above that threshold and the green indicates a payment within your target range.
As the chart shows, as rates go up, the amount you can afford to
borrow decreases and that may mean you have to look at homes at a
different price point. That’s why it’s important to work with a real estate advisor to understand how mortgage rates impact your monthly mortgage payment at various home loan amounts.
Are Mortgage Rates Going To Go Down?
The rise in mortgage rates and the resulting decrease in purchasing
power may leave you wondering if you should wait for rates to go down
before making your purchase. Realtor.comsays this about where rates could go from here:
likely winced . . . upon hearing that the Federal Reserve yet again
boosted its short-term interest rates by three-quarters of a percentage
point—a move that’s pushing mortgage rates through the roof. And the already high rates are just going to get higher.”
So, if you’re waiting for mortgage rates to drop, you may be waiting for a while as the Federal Reserve works to get inflation under control.
And if you’re considering renting as your alternative while you wait
it out, remember that’s going to get more expensive with time too. As
Nadia Evangelou, Senior Economist and Director of Forecasting at the National Association of Realtors (NAR), says:
“There is no doubt that these higher rates hurt housing affordability. Nevertheless, apart from borrowing costs, rents additionally rose at their highest pace in nearly four decades.”
Basically, it is true that it costs more to buy a home today than it
did last year, but the same is true for renting. This means, either way,
you’re going to be paying more. The difference is, with homeownership,
you’re also gaining equity over time which will help grow your net worth. The question now becomes: what makes more sense for you?
Each person’s situation is unique. To make the best decision for you, let's connect to explore your options.
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