Everybody is concerned about what is going to happen if interest rates go up.
Well, interest rates have ticked up a little bit since my last video. This increase has actually stimulated the market; it seems like more people are out there looking at homes, which is great. However, with less inventory on the market and more people looking, it causes buyers to lose buying power. They have to pay more for a property today than they would have for the same property a month ago.
Let’s take a look at what that actually means, using a $250,000 mortgage as an example.
If you’re qualified for a $250,000 mortgage at a 4% rate over the course of a 30-year term, your monthly payment—principal and interest—would be roughly $1,193. Let’s now assume that interest rates will go up 1%: that same $250,000 loan would then cost you $1,342, which is $149 more per month.
If you were approved for that $250,000 loan and the monthly payment of $1,193 was the maximum payment that you could afford, and then the rate increased by 1%, you’d no longer qualify for that amount. You’d end up only qualifying for a $222,000 home—you’ll have lost over $25,000 of buying power.
Ultimately, this shows that when rates go up, homes become more expensive. So if you’re thinking about buying a home, go ahead and make a move now. Rates are expected to go up even more this year—not a whole lot at a time, but as we’ve just seen, even a little bit can make a big difference.
If you’re looking to buy, sell, or if you have any questions, feel free to give my team a call. We’d be glad to help.