How Will The Increase In Interest Rates Affect Your Plans

Dated: 09/04/2015

Views: 558


It sounds real this time.  The Feds have been making noise about raising the interest rate for the last year.  This time is sounds like they are really going to do it.   

 AND THEY ANNOUNCED THEY ARE RAISING THE RATE THIS MONTH – SEPTEMBER!


Interest rates have been so low for so long, we have become totally spoiled and have forgotten what a normal interest rate of 6% - 7% looks like. 


This increase will definitely have an effect on the housing market for both buyers and sellers. 

From the buyer's standpoint – When qualifying for a loan, the lenders look at a buyers overall debts, income and credit and then, from this data, they determine the amount of payment that he or she will qualify for.  With higher interest rates, a buyer's payment will increase and in some instances the buyer will no longer qualify, at all, for a loan or they certainly will qualify for a much lower sales price.  In other words, as a  buyer, you will make the same payment for much less house.


From the seller's standpoint – Fewer buyers will qualify and those that do, will qualify for less house.  This  will increase inventory, driving values down.   Home equity is precariously low. If you are a seller wanting to move up, the lower sales price will produce less equity or may even put you back under water.  Your plans may be delayed for years, depending on how fast the rates go up.


For example:  A $200,000 mortgage at 4.25% has a payment of $984.00 (principal and interest).  That same $200,000 mortgage at 5.25% interest produces a payment of 1104.00 (principal and interest).  A whopping $120 per month increase!  A 1% increase in rates, raises your payment over 12%!


 Now, let’s take a look at how this affects buying power:   

                   

Desired Monthly Payment

Mortgage Amount at 4%

Mortgage Amount at 4.5%

Mortgage Amount at 5%

$1,000

$209,461

$197,361

$186,282

$2,000

$418,922

$394,722

$372,563

$3,000

$628,384

$592,083

$558,845

                                           

If you are planning to buy -  DON’T DELAY!!  LOCK YOUR RATES IN NOW!!  Call me and I’ll guide you through this.


If you are planning to sell – DO IT NOW!  The 1st increase in interest rates will send buyers scrambling to buy. The fence sitters will be jumping into the market to beat the next increase.  You have a narrow window of opportunity to maximize your proceeds!  Call me to determine your current market value and your cost of sales. 

Marcy Spieker, RE/MAX Metro Realty, 425-218-1158

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