Monday, March 3, 2014
As interest rates begin to rise, buyers lose purchasing power. Simply stated, for every 1% interest rates rise, a buyer will lose 10% purchasing power. So with a rate of 4.25% on a $200,000 loan, the payment would be $983/month (that's amazing on its own).
When (not if) interest rates rise to 5.25%, a buyer would have to have a $180,000 loan to keep nearly the same payment. In this example, at 5.25% on a $180,000 loan, the payment would be $993/month. So either the buyer will have to increase their down payment by $20,000 or they have to accept a less expensive home to keep the same payment.
Check out the chart below that shows the changes in purchasing power and payments as interest rates rise.
In addition in this rising home price environment, the impact is exacerbated because while the purchasing power decreases from higher rates, home prices are increasing. So the home that you qualified for a few months ago may be out of your financial reach today.
Most experts agree that interest rates will be on the rise this year. So if you plan on making the move towards owning your home, why not act now while you get the biggest bang for your buck. It could be the difference of getting your dream house or having to settle for your third or fourth choice. Or the difference between buying in Mount Pleasant and its coveted school district or another town that has substandard academics.
It doesn't matter if you're purchasing a vacation home in the Charleston area, a first-time buyer, or a seasoned investor, now is a great time to buy. Low interest rates combined with low home prices are creating historic opportunities. Plus with as little as 5% down with NO mortgage insurance, it's very easy to qualify.
About the author:
Eddie O'Neill is a mortgage expert with Coastlend Mortgage based in Charleston, S.C. He has been a licensed professional since 2004, license number NMLS 251457, and has closed more than 750 home loans in his career. His attention to detail, commitment to quality and competitive lending has earned him the respect and praise from clients and colleagues alike. Please direct any questions to firstname.lastname@example.org or 843-388-5763.