How Rising Mortgage Rates Affect Home Affordability (2017 Update)

I made a similar post a few years ago as mortgage rates were rising slightly, but low and behold, they then turned lower again. Now, rates have increased noticeably since the election and are forecast to continue to rise, albeit at a moderate pace. So again, 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 4.25%. Prior to the election, the same 30 year fixed rate averaged 3.50%. According to the Mortgage Bankers Association, rates are projected to hit 5.0% in 2018. 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 $500,000 loan last year at 3.5% would have equaled a monthly principal and interest payment of $2,245. That same $500K loan right now would be $215 more per month at $2,460. A year from now, if the projections hold, that same payment at 5.0% will be $2,684 per month, which is $224 per month more than right now. In other words, it will cost you $2,688 more per year if you wait until next year, and that equals $80,787 over the life of the loan, if you hold it the full 30 years. And while the price of homes may slow from the recent 10% per year rise, we could still easily see an increase of another 5% in sales prices over the next year, 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.