How Today’s Mortgage Rates Effect Your Home Purchase
If you’re planning to buy a home, it’s critical to understand the relationship between mortgage rates and your purchasing power. Purchasing power is the amount of money for a home you can afford to buy that’s within your financial reach. Mortgage rates directly impact the monthly payment you’ll have on the home you purchase by increasing the interest you pay on the house every month. So, when rates rise, so does the monthly payment you’re able to lock in on your home loan. In a rising-rate environment like we’re in today, that could limit your future purchasing power.
Today as of May 9th 2022, the average 30-year fixed mortgage rate is above 5%, and in the near term, experts say that’ll likely go up in the months ahead. You have the opportunity to get ahead of that increase if you buy now before that impacts your purchasing power.
For example, if you decide to purchase a home for $360,000 and you lock in an interest rate at 5%, your estimated monthly payment (principal and interest) will be $1,933. If that percentage rises to 6%, your monthly payment is now $2,158. That 1% increase has now cost you an extra $225 per month. For this reason, we recommend that you lock in a mortgage interest rate as soon as you can to avoid a possible increase. If you are interested in learning more about lenders in our area, be sure to give The Ellerbrake Group a call soon!
Craft A Plan With Your Realtor and Lender
You’re more likely to exceed your target payment range as mortgage rates increase unless you pursue a lower home loan amount. If you’re ready to buy a home, use this as your motivation to purchase now so you can get ahead of rising interest rates before you have to make the decision to decrease what you borrow in order to stay comfortably within your budget. If you have to go with a smaller house, you can avoid having to pay the extra interest, but then you will have to settle for something other than what you are interested in.
Work with a local lender to establish a good budget you are comfortable with, and they will help you determine what your max home price needs to be. Your lender will provide you with a recommended home purchase price so we can then look for houses in your price range.
Housing Demand Is Still Strong
No matter what, the best plan of attack is to work with your real estate advisor and a trusted lender to create a strategy that takes rising mortgage rates into consideration. Together, you can look at your budget based on where rates are today and craft a plan so you’re ready to adjust as rates change.
Even with the recent rise in mortgage rates, demand for real estate is remaining strong. Housing prices are also still holding strong, so if you are looking to sell, now might be the best time given that property is continuing to move and sell quickly.