Lately, mortgage interest rates continue to increase.  In fact, they are approaching a high that hasn’t been seen for years.  We were just seeing historical lows with our interest rates, so this is a sharp contrast.  When interest rates increase, this is often a sign of a healthy economy.  This has both positive and negative sides for people in the market to purchase a home.

On the positive sign, unemployment is low, and wages are increasing.  The negative side is what the increase in interest rates does to your purchasing power.  With rates on an upward trajectory, it can make it difficult to budget and decide how much of a mortgage to take on.  Here are some of the ways that rising interest rates can affect you as a borrower.

Buying Power

When seeking a mortgage, many factors come into play in deciding how much of a mortgage to take on.  Are you putting down a sizeable payment, such as the full 20% or will you need to finance more than 80%?  It pays to shop around to find the best mortgage option for you.

While a .25% difference doesn’t feel like a big deal, over the life of your loan, it can mean tens of thousands of extra dollars.  Don’t think in terms of the small hike in your monthly payment, think of the amount over the life of the 30-year loan.

When mortgage rates are on the rise, it makes it more complicated to settle on a home.  The smallest of changes can affect your monthly payment and put you in a situation that might not be as comfortable.

Competition

When interest rates rise, it signals a very healthy economy.  With unemployment levels falling and more and more people feeling confident in their positions and with their earnings, this means more people in the market for homes.

When you have more buyers entering the marketplace home values, begin to rise as well.  Buyers won’t have as much power in the negotiations because sellers are often getting multiple offers above their asking price.  While great for the seller, this means more work for potential buyers that are trying to stay on a strict budget.

Conclusion

There are pros and cons to rising interest rates.  One thing is for sure, the Fed just raised interest rates and had announced plans for multiple other raises this year alone.  If you are in the market for a new home, don’t delay begin the process now.  It can mean saving ten thousand or more dollars over the life of your loan and depending on the amount of mortgage you take on.

There are some fantastic properties out there including the Colorado real estate market, which is hot right now!  Wherever you look for a home, make sure you take the rates into account and work closely with your mortgage broker to cover any other fees that might be associated with buying a home.

 

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