What Impact will Rising Mortgage Interest Rates Have?

Posted by Jennifer on February 22, 2016 in Real Estate | Leave a comment

With the Fed’s recent move to increase the federal discount rate, it’s natural to be concerned about the future trajectory of mortgage interest rates. In our view, there’s no cause for alarm.

The Fed’s move doesn’t directly impact mortgage rates, and thus far, they have held steady since the Fed’s decision.

What happens if mortgage rates do tick up?

The math is pretty simple: each quarter point rise in mortgage rates equates to about a 3% loss in “buying power.” Example: the principal and interest payment on a $400,000 mortgage at 4.00% is $1,909.66. If the rate is 4.25%, the payment rises to $1,967.76.

Rising rates – on the short term – have historically brought more purchasers into the market, sensing that they should act now before rates go higher.

The bigger obstacle for most first-time purchasers is the down payment, not the monthly payment.

Generally rates rise when the economy is improving. If more people have jobs, there’s an overall positive impact on the real estate market as well.

Historically…

We’ve gone back to look at five time periods when the 30-year fixed mortgage interest rate was at least one full point higher than it was the same month the previous year. In four of those five cases, there was more contract activity in the month when the rates were higher. The only exception was the “bust” of a decade ago.

We’re not suggesting that higher mortgage rates are good for real estate, but that overall economic conditions matter much more.

Want to know more about buying or selling a home in our area? Contact Jennifer Halm or Ginny Brzezinski with Halm Brzezinski Homes. info@yourHBhomes.com