Should You Be Worried About Rising Interest Rates?

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We’ve seen home loan interest rates creeping up recently, with most mortgage rates higher than the levels offered a few years ago. As the market stays strong, will the interest rates continue moving up? It’s possible, so you need to consider how a higher rate will change your financing options.

How a Higher Interest Rate Affects Your Mortgage Payment

Your mortgage interest rate will have an impact on the amount of money that will be available for the purchase of your home. The general rule is that an increase of a quarter-point in your interest rate decreases your buying power by approximately $10,000. Extra room needs to be calculated into the loan to accommodate the higher interest costs that will be accrued.

Keep in mind that real estate prices are continuing to climb, so the key is to aim for the interest accrual to be less than the appreciation of your home. Even if you are paying a quarter-point higher on the interest rate, it doesn’t necessarily make sense to wait to buy. You aren’t guaranteed a lower rate when the future real estate prices come down.

Don’t Pay More for Your Home

Most homeowners are so focused on property value that they forget how much interest rates impact the overall amount that needs to be paid. If you wait to buy a home and the prices don’t come down by $10,000 or more, then you might actually be paying more for the property in the future when factoring in both home value and interest costs. Look at the selling price of the home as well as the amount of interest that will be paid to see the real numbers that affect your homeownership.

We Can’t Predict the Real Estate Market

Yes, it is smart to consider the timing when you are ready to buy a home. But it is impossible to predict what will happen with home values and interest rates. The best solution is to focus on your long-term strategy. Ultimately, the hope is to have the property paid in full by the time you reach retirement.

Are you ready to buy or sell a home in Temecula? Contact me at any time! Call, text, or email your questions so I can help you find the right deal help: (951) 473-0390 or [email protected].