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2018-03-23 14:38:53
What The New Interest Rate Means For Home Buyers

Photo by rawpixel.com on Unsplash“What goes up must come down” holds true for gravity, and the reverse holds true for interest rates. On Wednesday, the announcement of a .25 percent increase in interest rates marks the beginning of the climb upward. Rates are expected increase two more times this year by the same amount.

What does this mean for home buyers? To put it simply, the higher rates are, the less buying power you have. With the increase, the interest rate is at its highest point since 2008 shortly before the housing crisis. Interest rates are closely related to mortgage rates, which are at their highest level in almost four years, and are expected to rise as the federal interest rate does.

While this increase may seem small, even minor rate changes can add up over time. Realtor.com® offers this example: on a $300,000 house with a 30-year fixed-rate mortgage and 20 percent down payment, the difference between a 4 percent and 5 percent mortgage rate is $142 a month. Calculated over the life of the loan, that is more than an extra $51,000.

This means that if you’re thinking about buying a house, you shouldn’t wait. Potential home buyers have been enjoying the past decade of low interest rates, but that window is quickly closing. As house prices increase due to the interest rate hikes, first-time home buyers are likely to be the most affected, and might be forced to continue renting until they can afford these newer prices. Many buyers, first time or not, will have to settle for smaller houses or a location that is further out than they would like, where real estate is cheaper.

Even with this increase, there is still time to purchase a house with comparatively low interest rates. Waiting until even later this year could mean another interest hike by .25 or .50 percent, further raising the average price of a house. If you’ve been waiting to buy, now is the time to act.

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