By now you’ve heard that the Fed is probably, eventually, at some point in the near to middle future, going to begin raising the interest rate. It’s been speculated upon for months now that the rate hike would go into effect sometime in the early fall. So with that speculative deadline looming, many buyers (or current homeowners who may be looking to buy up or downsize) are beginning to eye the market with a little more interest. But how concerned should they really be? Well allow me to paint a picture for you. As a real estate industry specialist, I find that cold, hard numbers can really put things into perspective for some folks.
Let’s assume you want to purchase a median priced home at $250,000. If interest rates go up by just 1/4 of one percent (.25%), you will need to earn an additional three percent (3%) in income to qualify for the same $250,000 house. If you don’t expect your income to go up by 3%, then you must purchase a home priced 3% less.
That quote from an article on Realtor.com puts it right out there. With interest rates for qualified buyers still hovering around 4%, it can be easy to say that you can afford to bide your time and maybe put off a new home purchase for another year or two. And while that may be the best plan for some buyers who need to resolve credit or employment issues, the simple fact of the matter is that your buying power will decrease proportionally to how much the interest rate increases.
The article continues:
What’s worse, for every .25% increase in interest, it ends up costing you an additional $9,518 in interest payments over the course of the loan. Now, if rates go up by one full percentage point (1%), that would cost you $38,072 in additional interest over the life of the loan.
Wow. Looking at what a 1% increase can do to the total amount of debt tied into your mortgage is enough to shock most anyone into action. $38,000 could be a new car, college tuition, or a downpayment on a vacation home. There’s a lot of potential for that cash if it’s not tied up in interest payments.
Now let’s combine rising interest rates with rising home prices. What about those sweeping changes to lending regulations set to take effect on August 1, 2015? Are you opening another tab in your browser to search out home on Zillow yet? (Try searching here, instead!)
If you’re sweating in your socks right now, don’t worry. This isn’t a post to tell you that you’ve already waited too long, and you’ve missed the boat on owning your dream house. But seeing the numbers laid out in front of you can be the compelling push that many people need to make the first step toward buying a new home. And if that’s you, you’re in luck. The summer can be a great time for people entering the housing market. With some of the spring buying frenzy cooling off, buyers may find that there’s less competition to outbid one another. And working with a knowledgable real estate and lending team ensures that your home search will be free of hang-ups.
Financially savvy buyers, now’s your time. Don’t just sit around waiting for your popsicle to melt in this summer heat, get going!