The Federal Reserve Board has been talking about interest rates a lot lately, and has made it clear that an increase will probably happen soon. Back in September, the real estate community breathed a collective sigh of relief when they thought it would be approved, and they decided to wait. But the Federal Reserve was clear that it would be brought up again before the end of the calendar year. People who are currently searching for homes to buy know that mortgage rates will make a difference in their budgets, so it is important to know what to expect.
If mortgage rates increase, then obviously homeowners will either have to pay more each month for a home, or decide on a lower-priced house. Because the rates haven’t been increased in a while, it is expected that the change will be small, and then they will assess the change in the economy.
For a home that costs $200,000, the monthly payment on a 30-year loan with a 4% interest rate is $955. Should the mortgage rates increase to 4.5%, then that payment jumps to $1013, and a 5% rate translates to $1074 each month. House hunters will need to decide if they are willing to pay more each month, or if they need to search for homes in a lower price bracket.
In addition to monthly payments, the increased rate will change how much interest is paid over the life of the loan. Just a half of a percentage point equates to tens of thousands of dollars in interest over 30 years for most mortgages.
The Federal Reserve Board is scheduled to meet on December 6, 2015. October’s employment reports were strong, with good job creation numbers, and lower unemployment. As a result, it’s safe to say that interest rates will probably increase after that meeting. For home buyers who want to take advantage of lower rates, lock in a rate now and get serious about choosing a home.
For assistance in finding the right mortgage for your situation, contact us.