Interest Rates On The Rise

If you or someone you know is currently shopping for a home it just became less affordable since last week. During the week last week mortgage rates were as low as 4.17% for a 30 year fixed loan. As of today the mortgage rate has reached 4.5%, and seems to be climbing. The climb is a counter-intuitive response to efforts by the Federal Reserve in the last couple weeks to keep rates low. For  a $300,000 home this change would amount to an increase of  $56.21/mo for principal, interest, taxes and insurance.

This is clearly not a catastrophic change, however for many folks lenders are trying to squeeze them into a certain payment bracket and this could be enough to effect that calculation. If someone was previously qualified for a maximum of $300,000, their new qualification would top out around $289,300. So a nearly $11,000 loss of purchasing power. I rarely counsel folks to utilize their entire qualification amount because even in today’s market lender qualifications tend to be more aggressive than historical standards, so in most cases one would want to subtract even further.

I am not here to shout from the rooftops that potential buyers need to get off the fence because rates will never go down again, and are going to be 7% by January. I don’t know that, and clearly neither does anyone else since the Fed acted to reduce rates further and the market responded in the opposite fashion. However, folks should know that rates are volatile, and historically these low rates are on borrowed time, having been tampered with artificially for somewhere around two years.

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  • ColinStorm

    It occurred to me today as I was writing a follow up post this one that my math was off. I specified the interest rates for a 30 year fixed rate mortgage, yet assumed the 3.5% down payment for an FHA loan. The post is less about the specific numbers and more about the fact that the equation for buyers is changing, a fact that remains the same in spite of these errors. The new post up today utilizes the proper and consistent data.