It’s no secret that after years of historic lows, mortgage interest rates are rising and will likely close in on 5 percent by mid-2014 and go even higher in 2015. They averaged 3.5 percent in early 2013. That is unwelcome news for buyers and may push some households out of the market. As rates rise, buyers payments go up and they often have to look in a lower price range than they did before if they want the same payment.
How Rates Affect Payment – Some REAL Numbers:
The media can scare us into thinking another crash may happen or buyers will stop buying homes. But will they? Let’s look at some REAL numbers and see how it impacts a buyer’s monthly cash flow.
For the buyer looking to secure a mortgage at $150,000, an increase of one point (or 1 percent) in the interest rate would increase the monthly mortgage payment by $86. On a $400,000 mortgage, an increase of one point in the interest rate would increase the mortgage payment by $230 per month. These increases in monthly payment CAN make the difference between qualifying for a loan or not, making it more difficult for new home buyers to obtain financing for their new home. It just depends on the buyers financial position and how close they were to qualifying for the initial loan amount.
Here is some GOOD NEWS that may offset the impact or rising interest rates:
- Easier to Qualify for a Mortgage: Lenders have started loosening the criteria to qualify for a loan and are making financing more available. Some experts estimate 15 to 20 percent more households will be able to qualify for safe, affordable mortgages as lenders offer conventional conforming loans to households with credit scores in the 720 range, down from 760–770 in the last several years. FHA loans are now available to borrowers with scores in the 660 range, down from 680–700.
- Improving Employment: Job growth reached 2 million over the last 12 months and the same rate is expected in the year ahead.
- Fannie Mae and Freddie Mac SHOULD Reduce Their Fees: The much improved performance of Fannie Mae and Freddie Mac should lead to a reduction in the fees they’ve been charging to recoup their losses from the housing decline. They’re now making healthy profits and one would HOPE their priority will be to repay the taxpayer funds they received after the bust, and when that obligation is satisfied, the GSEs should cut their fees. Not only is that the right thing to do as taxpayer-owned entities, but it could help households who otherwise might not be able to buy in today’s rising interest-rate environment.
Have questions? Give me a shout! Mike – My info is at the top right of this page