Last Updated on September 9, 2022 by HortonTeam
Homebuyers have enjoyed the lowest mortgage interest rates in quite some time over the past several years, but that time is coming to a close. Interest rates are already increasing, meaning that NOW is the best time to buy your next home or sell your current one.
Changing Interest Rates
According to Movement Mortgage, mortgage interest rates are currently residing anywhere from 3.5% to 4.25%. Although these rates are the lowest they’ve been in recent years, outlets are reporting that interest rates will continue to see growth in the coming months and years.
Some real estate agents are even reporting a slight loss in sales as prospective buyers (especially first-time homebuyers) are finding it increasingly difficult to secure mortgage loans.
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How Significant are the Numbers?
The significance of these increasing mortgage interest rates varies depending on the financial situation of the buyer or seller. The easiest way to translate the increase into a monetary value is to create a hypothetical equation with varying interest rates.
In order to do this, we will establish the mortgage amount as $200,000 and the mortgage period as thirty years. With an interest rate of 3.5%, the estimated monthly payment is $898. By increasing the rate by just one-half percent to 4%, the monthly payment jumps to $955. If you multiply this difference of $57 by twelve (number of months in a calendar year), one could expect to pay an additional $684 per year or an additional $20,520 throughout the thirty-year lifespan of the mortgage.
Although the impact of these increases affects some more than others, both buyers and sellers are still affected.
How Does This Affect Me as a Buyer?
Although both parties are affected, the buyer will face the brunt of the rate hike. It’s never a good idea to run on the edge of financial stability, so most lenders or agents will advise prospective buyers to lower their target price range if they are looking for a home too close to their maximum financial capabilities.
Even though the range may only drop by five or ten thousand dollars, this still means you’ll be eliminating any houses you may be interested in that fall above your new target range.
Even though your $200,000 dream house is only slightly more, a recommendation from your lender to drop your loan to $160,000 – $190,000 will still eliminate the $200,000 house from contention.
How Does This Affect Me as a Seller?
You may initially think these increasing mortgage interest rates won’t affect you as the seller, but this isn’t entirely true. The buyer will be the one who is most impacted by the hike, but you will still notice an effect on your selling experience.
The most prominent issue is that the longer you wait to sell, the higher these interest rates will climb. This means that buyers will have a harder time securing financing for your home. Aside from the increased difficulty, you’ll inevitably be eliminating a certain pool of buyers who are no longer able to get their desired loan value approved.
This pool reduction combined with the fact that many buyers will simply seek houses closer to the middle of their price range ensures that waiting to sell is increasingly dangerous to your days on the market and bottom dollar.
What Should I Do?
The short answer: buy or sell your home as soon as possible. There’s always a chance that interest rates could go against predictions and begin to fall, but that is highly unlikely.
As a buyer, you’ll receive lower rates and less debt the sooner you decide to buy. As a seller, you’ll experience a tougher time selling, and you’ll ultimately receive less money the longer you wait.
The Horton Team advises you to buy or sell as soon as you’re financially ready, especially if you’re a buyer.
If you’d like to learn more about mortgage interest rates or buying or selling your home, contact us via our website or by calling our office at 812-518-0411.
*Interest rates and products are subject to change without notice and may or may not be available at the time of loan commitment or lock-in. Borrowers must qualify at closing for all benefits.