Interest rates are all the Buzz
The big buzzword lately in all aspects of the economy is “Interest Rates”.
Rising interest rates are something that mortgage lenders, real estate agents, and consumers have closely had their eyes on. Rates are at the highest levels in almost four years. Since the start of 2018 the U.S. weekly average 30-year fixed- rate mortgage has risen .49%. The good news is that rates are still far below the historical, high average interest rates of 6.13%, 10 years ago. While rates are well below these historical highs, the feds have made it very clear that if the economy stays going as strong as it is, then we can expect four more increases in 2019. I personally think we will see the high 5's if not even break the 6% barrier..
If rates continue to rise as we expect, what will be the cost to you for waiting? And just as importantly, for those looking to sell. The equity in their home needs to be used to its maximum benefit. Waiting to sell in hopes of getting $10,000 dollars more next year, could wind up costing them a lot more in offset purchasing power. Is selling your home later to get less when you purchase another one worth it?
In the attached Photo, one can clearly see the cost of 'waiting' when purchasing a home with a 30-year fixed mortgage, a 5% down payment, and a mortgage amount of $200,000. This would also apply to the people who were selling and looking to improve their current living situation.
As you can see, just moving from a 4% interest rate to a 5% interest rate would increase your monthly payment by $113 a month. This same change in rate would cost you, as the buyer, an additional $41,000 in interest paid over a 30-year term. Going from 4% to 6% interest rate would increase your monthly payment by $232 a month an additional $84,000 in interest paid over a 30-year term. That is a lot of money out of your pocket, both monthly and over time, that could be used on home improvements, family purchases, or building savings. To some people, an extra $232 a month may not be a deal breaker. But however home prices don't just affect you monthly principle and interest. They also effect things such as a higher down payment, higher Mortgage insurance and can require a higher income if you are buying close to the maximum amount your debt to income ratio allows. As interest rates go up., many lenders will tighten their qualifications. So not only will you be able to buy less home. Chances are that you will also be qualified to buy fewer homes on the market in your price range. Sellers will also need to compensate for these increases as well due to the fact that they too need to purchase another home. Once this snowball effect takes place.. many people will find themselves unable to purchase. And we all know what happens when landlords know that they can raise the rents because you have no where else to go. THEY DO!! The cycle continues until you have now very limited ability to save and buy your next home. There really is such a thing as the 'rent trap'
So, what does this mean for you
1. Now is the perfect time to purchase a home.
If you have been on the fence and these numbers make you give purchasing a home a second thought, speaking to a lender will help you know exactly where you fall right now based on these interest rates. Factors like income, credit score, and debt-to-income ratio will affect the baseline score at which you could be approved today. If these factors apply to you and your baseline score is already higher, it is even more important to get approved now before rates increase. We Partner with incredible lenders. They have the expertise to evaluate your situation and then help you decide what it is that you think you can afford.
2. Waiting could dramatically decrease the value of home you can afford.
If, your maximum budget for your home were $200,000 at a monthly principal and interest payment of $907, you would be able to afford the home with a 4% interest rate approval. However, with rising rates, if you were approved at a 5% interest rate, you would not be able to afford that same home anymore and would have to begin looking for homes at a lower value ($180,000) with potentially less of the criteria you want in a home.
3. Most importantly of all remember this. THIS IS A STEPPING STONE. If you are a first time buyer. It is always better to OWN a piece of property. In today's market be prepared to understand that it takes time to get to the top. We all would like to live in a mansion on the hill, but you have to start somewhere. It is unrealistic to think that your first home will be a 7000 sq ft home with 7 bedroom and a 4 car garage. It can come in time.
Call us, and our team of professionals would love to PARTNER with you and develop a plan for your goals. You'd be amazed what we can do.
Pasela Partners and Properties is proud to be Brokered by Equity Real Estate- Advantage
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