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Home Buyer

Today’s Interest Rates are Rising — Should You Wait to Buy?

Today’s interest rates are on the move. If you’re thinking about buying a home, now's the time to explore your mortgage options. Although mortgage rates remain low by historical standards, they are predicted to increase in 2017.

The Federal Reserve, the central bank of the United States, sets interest rates—either increasing or decreasing rates to keep inflation under control. When there’s a risk of inflation, the Fed raises rates to stimulate the economy. Rising interest rates are good news if you have deposit accounts, but bad news if you’re borrowing money. 

Some might say it’s smarter to postpone getting a mortgage until interest rates drop. But mortgage rates are unpredictable. There’s no way to know how rates will perform from year to year, so a rate hike today could be the beginning of a long string of hikes. The longer you wait to buy, the greater the risk of being priced out of the market.

Here is how rising interest rates affect borrowers.

1. Becomes More Expensive to Borrow

Interest is the fee you pay to borrow money. The higher your mortgage rate, the more you pay monthly and over the life of the loan. If you purchase a $100,000 house with a 30-year fixed-rate mortgage at 3.2%, your total cost for the mortgage would be roughly $155,688. On the other hand, if mortgage rates increase and you pay 4.2% for the same mortgage, your total cost for the mortgage jumps to $176,046.

2. Decreases Purchasing Power

Since a higher mortgage interest rate increases monthly payments, it also reduces purchasing power. Let’s say your mortgage lender determines you can afford a maximum monthly payment of $1,000 a month. Assuming a 5% down payment (and excluding taxes and insurance), at 3.2% interest you might qualify for a home around $240,000. However, with an interest rate closer to 4.2%, you might only qualify for a home around $215,000.

Bottom Line

Only you can decide the best time to buy a home. If you have a strong credit history and sufficient income to qualify for financing, why wait to apply for a home loan? Rates are climbing, so contact one of our mortgage experts to discuss your options.