Mortgage Rates Are Rising This Year, And Here's How It Affects Your Homebuying Budget
Mortgage rates are rising this year, but they remain extremely low as compared to the historical average. However, if the mortgage rate increases, it affects how much you can borrow while purchasing a home. According to Sam Khater, Chief Economist at Freddie Mac:
“Since January, mortgage rates have increased half a percentage point from historic lows and home prices have risen, leaving potential homebuyers with less purchasing power.” (See graph below):
When purchasing a home, it is critical to establish a monthly budget so that you can prepare for and recognize what you can afford. When it comes to sticking to a budget, however, even a slight increase in the mortgage rate can make a huge difference.
Today's median existing-home price, according to the National Association of Realtors (NAR), is $313,000. Here's an example of how a change in mortgage rate affects your monthly principal and interest payments on a home using $300,000 as a simple number close to the median price.
If you're getting ready to buy a home and know your budget allows for a monthly payment of $1200-1250 (marked in gray on the table above), the loan amount must decrease every time the mortgage rate increases to keep your monthly cost in range. This means that if you want to stay within your budget, you will have to search for lower-priced homes as mortgage rates rise.
In turn, closing on a home loan when mortgage rates are low helps you to borrow more money. When you purchase a home, you will have more buying power as a result of this. First American's Chief Economist, Mark Fleming, explains:
“Monthly payments have remained manageable despite soaring home prices because of low mortgage rates. In fact, monthly payments remain below the $1,250 to $1,260 range that we saw in both fall 2018 and spring 2019, but they are on track to hit that level this spring.
Although they remain low, mortgage rates have begun to increase and are expected to rise further later in the year, thus affordability will test buyer demand in the months ahead and likely help slow the pace of price growth.”
Mortgage rates are still very low today, but analysts expect that they will rise steadily this year. As a result, every second counts for homebuyers who want to get the best mortgage rate possible in order to afford the home of their dreams.
The spring housing market is in full bloom for buyers, thanks to low mortgage rates – but these favorable conditions might not last long. Let's connect today to begin the homebuying process while your purchasing power is still high.