Tuesday, February 18, 2014

Rate/Payment Relationship

Rate Payment Relationship 2 small.pngWhen you are buying a house, a ½% increase in interest rate may not sound like much but it is roughly equivalent to a 5% increase in price. It becomes obvious when you compare the payments.

If you financed 100% of the cost of a $250,000 home at 4.5% interest for 30 years, the payment would be $1,266.71 per month.  If the mortgage rate went up to 5%, the payment would be $1,342.05.  If the home increased 5% in value, the $262,250 loan at the lower 4.5% rate would have payments of $1,330.05.
 
The two payments are close enough to justify the statement that a ½% change in interest is approximately equal to 5% change in price.

Each time interest rates go up, fewer people can qualify to buy a seller’s home.  The mortgage rules that went into effect this year require buyers to meet specific payment to income ratios.  As demand picks up for the seasonal market, most experts expect rates to increase.

Buyers will be doubly challenged in the current market because prices are rising (NAR reports 11% last year) along with the anticipated mortgage rates.  Buyers who wait will inevitably be paying more to live in the same home had they acted sooner.

Check out on how Interest Affects Price for a home in your price range.

Click here to see houses for sale (MLS listings). And buyers, remember, you have the right to have a buyer agent working on your behalf - having an experience buyer agent/broker on your side with help save you time, money, and stress!

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About the author: Marilyn Messenger has been representing home buyers and sellers in Wayland, Sudbury, and the towns west of Boston for the past 20 years. A licensed broker associated with Andrew Mitchell and Company in Concord, she has earned the Certified Residential Specialist, and Accredited Buyers Representative designations and continually works to provide the most up-to-date information to enable her clients to make the best decisions when buying and/or selling a home. Contact Marilyn to start planning your next move.





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