Leave a Message

Thank you for your message. We will be in touch with you shortly.

How Interest Rates Affect Your Mortgage

How Interest Rates Affect Your Mortgage
 
Interest rates have been inching upwards over the last few years with the Federal Reserve promising that more rate hikes are on the way. But do interest rates actually matter that much when it comes to your mortgage?
 
Yes. Here’s why:
 
 

Interest Rates Affect Home Affordability

 
If you’re in the market to buy a home, interest rates will affect how much home you can afford. According to The Motley Fool: “Each quarter-point swing in interest rates, up or down, changes the amount you can afford to borrow by about 3%”. In terms of real numbers, if you wanted to borrow $500,000 and your interest rate for a fixed-rate mortgage was 4.5%, your average monthly payment would be about $2500. But if interest rates went up to 4.75%, your monthly payment would be about $2600. That might not seem like a lot, but it is a big difference in the eyes of the lender – and it also amounts to $1200 more per year!
 
So as mortgage rates go up, you’ll be able to afford to buy fewer houses. Depending on the neighborhood you’re looking in, this could be the difference between buying a turnkey home or one that needs a little work – or buying in that neighborhood at all.
 

Adjustable-Rate-Mortgages Are Particularly Vulnerable to Interest Rate Changes

 
If you have an adjustable-rate mortgage, you’ll definitely feel the effects of rising interest rates (if you haven’t already). Depending on the terms of your loan, your interest rate might change annually or more frequently than that. So even if rising interest rates haven’t affected you much, you’ll eventually feel the sting as your payments increase.
 

Rising Interest Rates Can Have an Inverse Effect on Home Prices

 
If you’re a seller, don’t think that rising interest rates won’t have any effect on the sale of your home! Usually, as interest rates go up and the buyer feels the squeeze of affordability, home prices come down a bit to compensate. Of course, there are a lot of other factors that go into pricing a home (location, schools, comparable sales, condition of the home, etc), but what buyers can and will pay for a home can also put pressure on home prices. Especially if wages haven’t kept up with housing prices.
 
You can always try to hold out for a better price, but if other sellers are lowering the price on their homes, you’ll have an even harder time trying to convince the buyers who can afford to buy your home that it’s worth it.
 
If you’ve been thinking of buying or selling a home in Pismo Beach, San Luis Obispo, or elsewhere on the Central Coast, now is the time to make your move! Give me a call to get started – (805) 441-1276
 
 
 

Recent Blog Posts

Stay up to date on the latest real estate trends.

Central Coast Summer Camps 2019

May 20, 2019

Summer is coming! If you’re looking for activities for your kids to enjoy this summer, check out my list of the best summer camps on the Central Coast below. Camp Na… Read more

Spring Events On The Central Coast

March 19, 2019

Spring is finally here and with the new season, comes lots of fun local events to enjoy! From wine festivals to local markets, make time to get out and enjoy the beaut… Read more

Top Ten Things to Do in Central Coast California

March 15, 2019

Whether you’re new in town or you’ve lived here all your life, Central California is full of fun things to see and do from taking a drive up Highway 1 to enjoying one … Read more

What Not to Do Before Buying a Home

February 27, 2019

Planning to buy a home on the Central Coast this year? While there’s a number of steps you shouldn’t forget to take, there are also many things you should avoid doing … Read more

Central Coast 2018 Fall/Winter Market Report

February 3, 2019

In the fall, experts reported that nationwide the housing market was beginning to shift to a buyer’s market. We can certainly see those effects already on the Central … Read more

What Not to Do Before Closing on a House

January 25, 2019

Congratulations! You’ve found your dream house and now you’re in escrow. Escrow can be a time of excitement and anticipation. But it’s important to remember that your … Read more

Let's Talk

You’ve got questions and we can’t wait to answer them.