Should You Worry about Interest Rates Going Up?

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In recent years, we’ve seen a lot of ups and downs with interest rates for home loans. Right now, rates are going up, which means that you can expect higher interest costs now compared to a year ago. Will these rates continue to increase? Yes, it’s likely, especially considering the recent Fed announcements. So, every homeowner needs to consider how their financing options are affected by higher rates.

How Your Mortgage Rate is Affected by a Higher Mortgage Payment

When the interest rate goes up, it affects the amount of money that you can use towards the purchase of real estate. As a rule of thumb, when the interest rate increases by a quarter point, it reduces your buying power by about $10,000.

So, we need to consider this factor when looking for homes in your budget. It’s important to leave extra room in the loan for the accrual of higher interest costs.

We are seeing that real estate prices continue going up. With the right deal, you can make sure that the interest accrual is less than the property appreciation. For example, just because you will pay a quarter-point higher for current interest rates, it doesn’t necessarily mean that you should wait to purchase a home. We can never predict what will happen to interest rates in the future.

Looking at the Bigger Picture

Too often, homeowners are looking at property value so much that they overlook how interest rates affect the total amount they will be paying on the loan. To put it into perspective: if you decide to wait to purchase a home and the prices don’t drop by at least $10,000, then you will likely pay more overall in the future when you calculate both interest costs and home value.

It’s essential to look at the selling price of the home AND the amount of interest you will be paying. This calculation shows the real numbers for your home ownership.

Considering Your Personal Needs

We can’t predict interest rates or the real estate market. The ideal solution is to keep your focus on a long-term strategy. Buying now gets you closer to paying the property in full when you are ready to retire.

If you are ready to buy or sell real estate in Temecula, then call, text, or email me any time: (951) 473-0390 or [email protected].