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« Making the Deal in a Seller's Market | Main | Are we moving again? » Tuesday, May 03, 2005Buying Even with Rising Interest RatesHot Real Estate Market Won’t Freeze with Higher Rates We have all been reading the papers and hearing the TV reports about interest rates being on the rise. According to reports, homebuyers can probably expect a modest increase in loan rates later this year. Many observers believe, however, that the buyers will be better off for the change. Economists agree that the factors behind rising rates – job and income growth – show promise for the housing sector. Yes, promise – you read that correctly! This way of thinking invalidates the thought that higher mortgage costs will lower the ownership aspirations of lower-income buyers.
After all, if more people have jobs and their income is increasing, they will be able to still purchase a home whether the interest rates are at 5.5% or 7%. I once heard that “homes are where the jobs go at night.” This will become truer as the economy grows.
What will the mortgage payment impact be with rising rates? For example, assume you purchase a home today for $224,000 and receive a 30 year fixed loan:
Purchase Price: $224,000 Down Payment: $22,400 (10% of purchase price) Taxes: $1,500/year Insurance: $600/year
Monthly mortgage payment based on: 5.5% interest rate: $1,395/month 7.0% interest rate: $1,592/month
Your mortgage payment increases $197/month with the 7% interest rate versus the 5.5% rate. Think about that number….$197 can still be affordable for homebuyers if the buyer cuts $197 worth of spending out somewhere else.
Posted by Kristi May on May 3, 2005 | Permalink CommentsThe comments to this entry are closed.
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