Image: Mortgage Rates %

Mortgage rates have risen sharply in recent weeks, which may have you wondering what this means for your plans to buy a home. Here's some information that can help you make an informed decision about your homebuying plans.

The Increasing Cost of Mortgages is Having an Impact

As mortgage rates increase, your purchasing power decreases because the cost of buying a home becomes more expensive and you can afford less. Here’s how it works.

If you want to buy a home that costs $400,000, you may have to pay more each month if mortgage rates go up. The median-priced home per the National Association of Realtors is $389,500. The chart below shows how your monthly payment could change if rates go up.

Buyer's Purchasing Power Chart

As the chart demonstrates, when rates increase, the amount you can borrow decreases, which may mean you have to consider homes at a different price. That is why it is crucial to work with a real estate advisor to comprehend how mortgage rates influence your monthly mortgage payment across various home loan amounts.

Are There Any Signs that Mortgage Rates Will Start to Fall Again Soon?

The increase in mortgage rates and the consequent decrease in purchasing power may make you wonder if you should wait for rates to go down before making your purchase. According to Realtor.com, this is where rates could go from here:

"Many homebuyers likely winced . . . upon hearing that the Federal Reserve yet again boosted its short-term interest rates by three-quarters of a percentage point—a move that’s pushing mortgage rates through the roof. And the already high rates are just going to get higher."

The Federal Reserve is working to get inflation under control. You might be waiting for mortgage rates to drop and considering renting as your alternative but that may also be an expensive way to go, too. Senior Economist and Director of Forecasting - Nadia Evangelou - at the National Association of Realtors (NAR), says:

"There is no doubt that these higher rates hurt housing affordability. Nevertheless, apart from borrowing costs, rents additionally rose at their highest pace in nearly four decades."

It is more expensive to buy a home today than it was last year, but the same is true for renting. Therefore, you will be paying more either way. Homeownership has the advantage of building equity over time, which will increase your net worth. The question is: what makes more sense for you?

In general, buying a home today costs more than it did last year. However, renting falls under this as well. Therefore, regardless of the path you take, you will pay more. However, you will build equity over time if you own a property. As a result, your net worth will increase. What is the best move you can make right now?

Bottom Line

We consider each client’s situation a unique one. To help you make the best decision, let’s connect to discuss your options.

 

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