Why should I worry about interest rates?
If you are thinking about buying a home in the next 6 to 12 months, you’ve probably heard that interest rates are really low and it’s a great time to buy. So what difference does it make if rates go from 4 to 5%? Isn’t that still really low?
The good news is that YES, 5% is historically a low rate as well. However, rising interest rates will definitely either increase your payments or decrease the amount you are able to spend on a new house. Let’s look at some examples. In the chart below, for each loan amount, I’ve listed the approximate monthly payments (principal and interest only), based on a 30-year amortization schedule.
| Loan Amt | 3.50% | 3.63% | 3.75% | 3.88% | 4.00% | 4.25% | 4.38% | 4.50% | 4.68% | 5.00% |
| $100,000 | $449 | $456 | $463 | $470 | $477 | $492 | $499 | $506 | $517 | $537 |
| $150,000 | $674 | $684 | $695 | $705 | $716 | $738 | $749 | $759 | $776 | $805 |
| $200,000 | $898 | $912 | $926 | $940 | $955 | $984 | $999 | $1,012 | $1,035 | $1,074 |
| $250,000 | $1,123 | $1,140 | $1,158 | $1,176 | $1,194 | $1,230 | $1,248 | $1,265 | $1,293 | $1,342 |
| $300,000 | $1,347 | $1,368 | $1,389 | $1,411 | $1,432 | $1,476 | $1,498 | $1,518 | $1,552 | $1,610 |
| $350,000 | $1,572 | $1,596 | $1,621 | $1,646 | $1,671 | $1,722 | $1,747 | $1,771 | $1,811 | $1,879 |
| $400,000 | $1,796 | $1,824 | $1,852 | $1,881 | $1,910 | $1,968 | $1,997 | $2,024 | $2,070 | $2,147 |
So if you are borrowing $200,000, and interest rates go up from 4% to 5% (just a 1% jump!), you can expect to pay $119 more per month! What could you do with an extra $119 each month?
Now for those of you who are thinking about selling your homes, rising interest rates can impact you as well. If fewer people can afford your home due to higher interest rates, it may take longer to sell.
What does this mean for you? It means that if you are waiting to act… should you actually get ready to go? Call or email me today and we can discuss your options.
