Mortgage rates are on the rise this year, but they’re still incredibly low compared to the historic average. However, anytime there’s a change in the mortgage rate, it affects what you can afford to borrow when you’re buying a home. Since January, mortgage rates have increased half a percentage point from historic lows and home prices have risen, leaving potential homebuyers with less purchasing power
When buying a home, it’s important to determine a monthly budget so you can plan for and understand what you can afford. However, when you need to stick to your budget, even a small increase in the mortgage rate can make a big difference.
According to the National Association of Realtors (NAR), today, the median existing home price is $313,000. Using $300,000 as a simple number close to the median price, here’s an example of how a change in mortgage rate impacts your monthly principal and interest payments on a home.
Impact of Rate Increases
If, for example, you’re getting ready to buy a home and know your budget allows for a monthly payment of $1,200-$1,250 (marked in gray on the table above), every time the mortgage rate increases, the loan amount has to decrease to keep your monthly cost in range. This means you may have to look for lower-priced homes as mortgage rates go up if you want to be able to maintain your budget.
In essence, it’s ideal to close on a home loan when mortgage rates are low, so you can afford to borrow more money. This gives you more purchasing power when you buy a home. Monthly payments have remained manageable despite soaring home prices because of low mortgage rates. Although they remain low, mortgage rates have begun to increase and are expected to rise further later in the year, thus affordability will test buyer demand in the months ahead and likely help slow the pace of price growth. Today’s mortgage rates are still very low, but experts project they’ll continue to rise modestly this year. As a result, every moment counts for homebuyers who want to secure the lowest mortgage rate they can in order to be able to afford the home of their dreams.
Thanks to low mortgage rates, homes continue to remain relatively affordable. If you are considering a home purchase, now might be a good time to speak with a mortgage loan officer to discuss your options. If you are thinking about buying a home in the longer term, it still is a good idea to speak with a loan officer. Many potential homebuyers initiate their search by learning about their financial options and getting their budget and finances in order. It is never too early to become familiar with the process and understand your options.
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About Log Pond Realty
Home is where your story begins. Home is where hopes and dreams are born, memories are made, and lives are lived. We would love the opportunity to assist you in writing your new story.
We service the Triangle region of North Carolina including Raleigh, Cary, Apex, Holly Springs, Morrisville, Fuquay-Varina, Durham, Chapel Hill, Wake Forest, and Garner.
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