Interest Rates Going Up Again
Mortgage rates surged last week to their highest levels in years. The average rate for a 30-year fixed mortgage loan rose to 4.625%, in response to a press conference June 19, where Federal Reserve chairman Ben Bernanke said that if the economy continues to improve the Fed could slow quantitative easing later this year.
What This Means for the Housing Market
This is already slowing down the housing market because it decreases what people are able to afford. Some buyers who got qualified to a buy a home for a certain price just 10 days ago may realize now their payment could be even higher than they thought, and in some cases they may no longer be able to afford the home.
For instance a month ago, when the average conventional rate was at 3.81%, a monthly payment on a $350,000 loan would be $ 1,633. With today’s rate of 4.625%, the monthly loan would jump to $1,800, a difference of $167 a month.
See how the monthly mortgage payment changes depending on the interest rate:
If you’re looking to buy a home and you got pre-approval for a certain amount a month ago, you should go back to your mortgage broker to see how these higher rates change your mortgage payment and what you can afford. With these higher rates you won’t get approved for as much. For instance, if you were approved for a maximum of $350,000 a few weeks ago, at today’s rates you would now be approved for a maximum of $325,000.
What This Means for Home Sellers
People selling their homes will be affected by this increase as well. For example, if you are selling your home for $350,000 and you receive an offer on your home, you’d have to make sure the buyer locked in the lower rate. If not, you may want to ask your buyer to get approved again. It is possible that the new approval may be at a lower amount that isn’t enough to cover the price of the home. This is typically more likely to happen for people who are putting down less than 20% because the numbers tend to be tighter.
Will Interest Rates Continue to Climb?
It appears interest rates will continue to rise at least this week based on what we’re seeing this morning. We are hopeful the Fed will recognize how rising rates will make buying a home less affordable, which will hurt the housing market. Then they will be forced to act to bring rates back down.