Happy almost spring! As far as I’m concerned, it can’t come soon enough! In this post, I thought I would talk a little about mortgage interest rates and how, as rates rise, affordability decreases. Rates for a 30 year fixed mortgage are currently hovering around 4.32%. In the first quarter of 2013, the same 30 year fixed rate averaged 3.5%. According to the Mortgage Bankers Association, rates are projected to be about 5.2% by next spring. Fannie Mae and Freddie Mac forecasts are also in that range at 5.0% and 5.3%, respectively. If you are thinking about making a move and can’t decide whether to do it this year or next, let’s look at an example of house payments with the different rates.
A $400,000 loan last year at 3.5% would have equaled a monthly principle and interest payment of $1,796. That same $400K loan right now would be $188 more per month at $1,984. A year from now, if the projections hold, that same payment at 5.2% will be $2,196 per month, which is $212 per month more than right now. In other words, it will cost you $2,544 more per year if you wait until next year, and that equals $76,320 over the life of the loan, if you hold it the full 30 years. And to put icing on the cake, the price of homes between now and the spring of 2015 are projected to increase 3.8%-5.6% as well, thus further decreasing your purchasing power.
First and foremost, it is most important to make a move when the timing is right for you and your family. But if the timing isn’t as critical, you may want to consider making that move sooner than later if you will be financing the purchase with a mortgage.