Interest Rates are Rising – Should Buyers Be Worried?

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We’ve had rock-bottom interest rates for so long, now home buyers are wondering if they should be worried about the slow increase in mortgage rates. The market is holding strong due to low inventory and high demand – will the interest rates continue to increase because of these trends? If you are considering buying a home anytime soon, then it’s important to know how much your interest rate will affect your financing.

How Mortgage Payments are Affected by Interest Rates

The higher your interest rate, the less amount of money you will have available to spend on a home. To put it simply: when an interest rate increases by a quarter point, your home buying power decreases by about $10,000. Since you are paying higher interest costs, less of your monthly payments will be going toward the principle of the loan.

Since real estate prices are continuing to increase, consider how you are balancing interest accrual with the appreciation of your home. Yes, a quarter point higher on your rate will increase the overall amount you will pay. But the potential value increases because appreciation helps to cover the difference. Also, you can never guarantee that you’ll get a better interest rate in the future if/when home prices drop again.

Overall Costs of Paying for a Home

While it’s important to look at the value of the property you are buying, don’t overlook the fact that your interest rate also plays a role in how much you will pay over the course of the loan. For example, if you decide to wait on the home purchase but prices don’t drop by at least $10,000, then it’s possible that you will pay more money overall when you calculate the cost of the home plus interest.

If you want to see the real numbers that affect homeownership, then calculate the selling price of the home as well as the interest you will be paying over time.

Who Knows What the Future Holds?

Yes, you need to consider the right timing for your family when buying a home. But we can’t predict what will happen in the real estate market in the future. Instead of getting caught up in the current nuances, focus on the long-term strategy that builds financial freedom over time. Then, you can enjoy the real benefit: owning your home in full so you don’t have to pay a mortgage during retirement.

Do you need assistance selling or buying a home in Temecula? I’m here to assist. Call, text, or email me at (951) 473-0390 or [email protected].