The average interest rate on a 30-year fixed mortgage has remained near historic lows since 2013, but these rates have started to rise. It is important for real estate consumers to understand rising mortgage rates and how these rates will impact your ability to buy or sell a home. To ease Buyers and Sellers anxiety, here is what rising mortgage rates will mean to you.
* Higher interest rates, translate into higher mortgage loan costs.
* Rising rates makes homes more expensive for Buyers, which lowers the demand for home purchases.
* Less demand impacts Sellers as the price of their home decreases in order to attract Buyers.
* Rising mortgage rates will not have much of an effect on property value or housing prices, as long as salaries and wages grow accordingly.
In Real Estate, conventional wisdom says that rising interest rates make buying or selling a home more difficult, and decreasing interest rates make buying and selling easier.
For example, if a Home Buyer wants a 4% rate on a 30-year fixed mortgage of $500,000, the monthly mortgage payment would be $2,377. But if the same Buyer only qualifies for a 5% rate on the same 30-year fixed mortgage, the monthly payment would rise to $2,668. A 1% increase in interest raises the Buyer's payment by $291, or roughly 11%. So, what does this mean for homebuyers? As mortgage rates increase, affordability decreases.
Your credit score will greatly impact the interest rate that you receive on your mortgage. Try and improve your credit score before applying for a mortgage.
Rising mortgage rates also affect Sellers. For example, if the Seller wants to sell the house for $500,000, rising interest rates may decrease the number of potential buyers who can afford the home.
Rising interest rates do have a noticeable effect on the Real Estate Market. Property value and housing prices directly correlate to mortgage rates. Yet, if the economy grows fast enough, rising mortgage rates will not have as great an effect on property value and housing prices. If the economy is strong it allows employers to increase salaries to help compensate for the rising interest rate.
If you are thinking of buying investment property rising rates can be positive. The market for rental properties often increases because fewer people can qualify for mortgages. Rising interest rates reduce property prices, so it can be better to buy during this time. Often, fewer real estate transactions take place as lending standards tighten. Thus, more people will need rental properties until they can afford a mortgage.
You don’t need to fear increasing mortgage rates, if you are thinking about Buying a home or Investing in real estate. Historically, todays rates are still very low. The annual average for 30-year fixed mortgage rates has not reached 5% since 2009. In 2006, the average mortgage rate was 6.41%; in 1996, 7.81%; and in 1986, 10.19%.
Need Real Estate advice? Don’t hesitate to contact me. I will give you the knowledge, confidence and security, so you can make the right decision on buying and selling real estate.