With heightened talk of rising interest rates, many prospective homebuyers are understandably concerned about whether it’s the right time to purchase a home.
Indeed, you may be wondering if you waited too long and let the historically low interest rates pass you by or if you can still find a dream home that fits within your current budget.
Experts say that it’s true that rates are at their highest in almost four years and that this year has been particularly rough, however, it’s not all bad news. Rates are still well below the levels seen 10, 20 and 30 years ago.
“Rates are still low by historical standards, helping make mortgage payments affordable for many, but your wallet might take a hit if rates continue to go up,” says Freddie Mac deputy chief economist, Len Kiefer.
How big will the hit be? Assume you buy a home with a 20 percent down payment, take out a $200,000 mortgage and are getting a 30-year fixed-rate mortgage. At a 4.5 percent interest rate, your monthly payment would be $811 with total interest paid over the life of the loan being $131,851. With a 7.5 percent interest rate, your monthly payment would be $1,119 with a total interest paid of $242,748. With an 18 percent interest rate, your monthly payment skyrockets to $2,411 with a total interest paid of $708,081.
If rates jump a half percentage, you’ll pay a bit more each month, which isn’t ideal, but the added expense will unlikely be a deal-breaker. However, if rates jump to the levels they were in 1981 (an average of 18 percent), you can expect to pay a whopping $1,600 more per month, which may cause you to think twice about taking the plunge into homeownership.
To find out how much you’ll pay, check out Freddie Mac’s free Fixed-Rate Mortgage Calculator at calculators.freddiemac.com. For other free tools and resources, visit myhome.freddiemac.com.
Don’t let current rising interest rates prevent you from buying a home this year. Experts suggest that while rates have risen recently, historically speaking, it is still an overall great time to buy.