With the increasing discussions about rising interest rates, many prospective homebuyers are understandably concerned about whether it’s the right time to buy a house.
In fact, you may be wondering if you waited too long and missed out on historically low interest rates or if you can still find a dream home that fits your current budget.
Experts say it’s true that rates are at their highest level in nearly four years and that this year has been particularly challenging; however, it’s not all bad. Rates are still well below the levels seen 10, 20, and 30 years ago.
“Rates are still low by historical standards, helping to make mortgage payments affordable for many, but your wallet may feel the impact if rates continue to rise,” says Freddie Mac’s Deputy Chief Economist, Len Kiefer.
How big will the impact be? Suppose you buy a house with a 20% down payment, take out a $200,000 mortgage, and secure a 30-year fixed-rate mortgage. With an interest rate of 4.5%, your monthly payment would be $811, with a total interest paid over the life of the loan of $131,851. With a rate of 7.5%, your monthly payment would be $1,119, with a total interest paid of $242,748. With an 18% rate, your monthly payment skyrockets to $2,411, with a total interest paid of $708,081.
If rates rise by half a percentage point, you’ll pay a little more each month, which isn’t ideal, but the additional expense likely won’t be a dealbreaker. However, if rates rise to the levels of 1981 (an average of 18%), you can expect to pay an astonishing $1,600 more per month, which may make you think twice before diving into homeownership.
To find out how much you’ll pay, check out Freddie Mac’s free Fixed-Rate Mortgage Calculator at www.calculators.freddiemac.com. For other free tools and resources, visit www.myhome.freddiemac.com.
Don’t let the current high interest rates stop you from buying a house this year. Experts suggest that although rates have risen recently, historically speaking, it’s still a great time to buy.
Source: StatePoint