What the Fed Rate Hike Will Mean for Home Buyers
For a while, we expected the Federal Reserve to raise interest rates . This will affect everything from credit card debt to savings accounts and mortgage rates. If you are buying a new home, this is what the rate hike means to you.
Mortgage rates have been really low for a while now. When the Fed eventually raises the rate, the notoriously low rates we used could go up.
But it won’t happen overnight. It is reported that even when the Fed raises rates, it will only happen at 0.25% intervals. It doesn’t seem like much at first. For example, if you have a $ 300,000 30-year mortgage, then a 0.25 percent increase would cost you about $ 35 extra per month. Of course, this adds up over time. And the more the rate increases, the higher the monthly payment will be. As Forbes notes, with a 1% increase, your mortgage can add up to an additional hundred dollars or so, which adds up to tens of thousands of dollars over the life of your loan.
You can play with the numbers yourself , but the bottom line is that if you’re thinking about buying a home, you might be thinking about locking in the rate while it’s low, or reconsidering how much home you can afford. Forbes reports:
I spoke with Debbie Lansing, realtor for Keller Williams in Montclair, NJ, and she quoted real estate appraisal guru Jeffrey Otto, who said that “ every 1% rise in interest rates means a 9% drop in the price of a home. I can afford it. ” This would mean a 10% lower mortgage, $ 350,000 for a $ 389,000 home, would reduce affordability in terms of affordability to $ 315,900 and a purchase price of $ 351,000.
Again, when the Fed finally raises rates, it won’t happen overnight, but it is something you should consider when considering different loan options and your own terms. It is not worth buying a home before you are ready , but if you are not ready to buy it is worth considering it.
For more information, check out the full Forbes post at the link below.
How much will the house price increase cost you? | Forbes
Update : As several readers have pointed out, the Fed funds rate is not tied to mortgage interest rates. However, the Fed rate does affect those rates, and you can see how they compare in this helpful post from Bankrate .