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When to buy a house: Factor in possible mortgage-rate increase

If you are trying to decide when to buy a house in Atlanta, you should understand how a rate change will affect your payments.

Since 2009, excluding a 90-day period, the average monthly 30-year fixed rate mortgage has been at or below 5 percent, according to The Atlantic. Before 2009, mortgage rates had never been as low as 5 percent since their introduction back in the 1940s. If you are trying to decide when to buy a house in Atlanta, understand that interest rates are likely to rise over the coming year, although a rate hike is not guaranteed.

How a rate increase affects your monthly payment

Most homebuyers will need to borrow money in order to pay for some portion of the cost of the home and will stretch their budget in order to do so. That is why it’s important to time your actions for buying a house to avoid the pain of paying a higher interest rate for a mortgage. An interest hike of 1 percent may not seem like much, but take a look the following example to measure the impact it can have on your monthly payment.

According to the Atlanta Board of Realtors, the metropolitan area had a median home price of $208,000 in March 2014. Assuming that you make a 10 percent down payment of $20,800, you will need to finance $187,200. If you obtain a 30-year fixed rate loan at an interest rate of 4.5 percent, your monthly payment will be $948.51 per month. This does not include other costs, such as private mortgage insurance, homeowner’s insurance or property taxes. If the interest rate rises just 1 percent to 5.5 percent, your payment will increase by $114.39 to $1,062.90 per month. You will end up paying an additional $41,179 over the course of the 30-year loan.

Purchase before interest rates increase

For some people, paying an additional $114.39 dollars per month will not make or break their budget. However, if you are already stretching your income, the increase could mean the difference in whether you can meet the bank’s debt-to-income ratio, which is a requirement for qualifying for a mortgage. If you have already made the decision to purchase a home, you may save yourself some money by taking action to buy now versus later in the year. Online interest rate calculators can help you see find the increase in rates based on your target home price.

Options for offsetting a rate increase

If you have not made a final decision about when to buy a house and the mortgage rates increase, you have options to offset the rate increase and keep your payment at a comfortable level.

  • Make a larger down payment and borrow less money.
  • Purchase a less expensive home.
  • Continue to rent to save more money.
  • Pay off debt.
  • Wait for an income increase.

In 15 or 30 years you will thank your lucky stars that you locked in on these historically low rates.

If you have questions about mortgage rates or any aspect of buying or selling a home, contact Duffy Realty of Atlanta for a free no-obligation consultation.

Image source: Wikimedia Commons

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