Well, it’s happening: After nearly two years of historically low home loan levels, interest rates are rising. Rates have recently shifted from a low 3% to a higher 3% — but you may be wondering how that change affects you and your home buying plans. Ultimately, as long as you’re working with a knowledgeable real estate agent and trusted lender, you have no reason to worry.
In today’s blog post, I want to take a look at how the increased interest rates will impact the home buying process in coming months.
How Rising Interest Rates Affect Home Buyers
First, it’s important to note that rising interest rates primarily affect home buyers in the short-term. As monthly payments increase, their affordability decreases. For instance, if you take out a $300,000 home loan and assume that rates have increased 0.5% on average, you will experience an $83 per month mortgage increase. Of course, this amount varies based on location, loan options, and loan amounts.
As the example above indicates, while rates have increased, the overall change in payments is still relatively small. Currently, there is an average increase in monthly payments of $76 per month. Most lenders will already have a buffer built into their pre-approval process to account for variables, including shifting interest rates, during the home buying time frame.
How Rising Interest Rates Impact Lenders
When it comes to rising interest rates, lenders are most impacted by the affordability for their customers. As Michael Dean, Originating Branch Manager at CrossCountry Mortgage, LLC, explains, “With higher rates comes higher mortgage payments, and with higher mortgage payments comes higher overall monthly debt to consider.”
Typically, buyers are already at the high end of their qualifying power. If the initial pre-approval amount has a higher rate amortized across it, it can potentially affect a customer’s ability to afford it.
Keep Your Home Buying on Track in 2022
As a home buyer, it’s important to remain calm. To start, market fluctuations are totally normal, and rates are still incredibly low. Plus, rising interest rates can actually have long-term benefits to the market. For instance, you may have noticed that the cost of everyday items has increased in recent months. While low interest rates are great for your mortgage, they’re not good for inflation.
Another way for home buyers to prepare for rising interest rates? Communicate your concerns to your lender! “Check in to ensure that your pre-approval amount is still valid and ask for an updated estimate to ensure that the monthly increase is still within your family’s budget,” Michael encourages.
Stay tuned! Next month, we’ll dive deeper into this topic as we explore what you can expect for the spring home buying season.
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