Have you heard that interest rates for home loans is rising? And because of that have you wondered as a home buyer how does that affect you when it comes to buying a home today?
My clients and friends that are looking for homes has had the same burning question. And so today I’ll be sharing with you how rising interest on home loans can affect your ability to buy a home.
Interest rates has been pretty steady since 2012 but now this year we are starting to see an uptick in the rates heading towards 5% and we haven’t seen rates in the 5% since 2010.
- The Mortgage Bankers Association predicts it will rise to 4.8 percent by the end of 2018.
- Freddie Mac expects it to average 4.6 percent for 2018 and jump to an average of 5.1 percent in 2019.
- Realtor.com says the rate will average 4.6 percent and reach 5 percent by year-end.
So what’s up with rising interest rates and how does it affect home buyers?
As of Sept of last year rates went up from 3.81% to 4.63%. Now You may be thinking that doesn’t sound a lot and that’s the thought a lot of my clients had until I showed them what I’m about to share with you.
Since I’m in Silicon Valley the example I’m going to use is average sale price for the area.
- 3 bedroom Single family home here in San Jose is around $1,000,000.
As you view below you will notice how a 1/4 increase in the interest rates can have an affect on buyers buying power, by lowering their approved purchase price amount.
Let’s assume in this example:
- Approved Purchase Price $1,000,000
- Rate 4.5%
- Down Payment 20%
- Loan Term 30yr fixed
- Principal & Interest $4,053 a month
With a rate increase from 4.5% to 4.75% and keeping the down payment, P&I, and loan term the same the new approved purchase would be at $971,203 roughly a$28,000 less in buying power.
|P&I||$4,053||Down Payment||20%||Term||30 yr fixed|
|Loan 80% LTV||$800,000.00||$776,962.00||$754,999.00||$734,056.00|
If you’re a buyer who has been waiting to buy and you don’t want to be priced out on purchasing a home in a neighborhood that you like. Now is the time to make a move and get serious before the window of opportunity passes you by.
If you are ready to buy and have any questions contact me: 408.422.300 or email [email protected]