Midwest Mortgage Rates Are Going Up! Now May Be the Right Time to Lock in a Low Rate
Mortgage rates have gone up almost a half of a percent over the last two weeks since the positive jobs report that came out showing fairly solid job growth. It is important to understand the impact that rising mortgage interest rates will have on home affordability. Everyone knows that rising mortgage rates means higher mortgage payments, but here is an example of the impact in terms of overall mortgage affordability.
Say interest rates for a 30 year fixed mortgage are 3.5% and you would like to borrow $300,000. The payment for that loan is $1,347 per month. Now, if rates go up 1%, the payment for that same loan is $1,520. If rates go to 5.5% (which historically is not a high rate at all), the payment is $1,703 per month, almost $400 more per month.
Now think about it in terms of an actual sales price a loan amount. If rates go to 5.5%, you borrowing power is about 20% less. What that means is your payment on a $300,000 loan at 3.5% is actually lower than your payment on a $240,000 loan at 5.5%. So, if you had 10% to put down, you could buy a $330,000 home at today’s rates but if rates go to 5.5%, you could only but a home worth about $250,000.
Confused? Bottom line is this – low mortgage rates and low home prices make this a very attractive time to buy a home. But the window is closing. When rates go up and prices go up, this opportunity will be gone.
United Home Loans offers mortgage loans for the purchase or refinance of a primary residence, second home or investment property in Illinois, Indiana, Michigan, Minnesota and Wisconsin. Please call the Midwest mortgage experts with any questions you may have at (708) 531-8388.