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NEW YORK – May 10, 2018 – 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, people may be wondering if they waited too long and let the historically low interest rates pass them by or if they can still find a dream home that fits within the family's 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 the 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 a person buys a home with a 20 percent down payment, takes out a $160,000 mortgage and is getting a 30-year fixed-rate mortgage.
At a 4.5 percent interest rate, the 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, the monthly payment would be $1,119 with a total interest paid of $242,748. With an 18 percent interest rate, the monthly payment skyrockets to $2,411 with a total interest paid of $708,081.
If rates jump a half percentage, buyers will 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), people can expect to pay a whopping $1,600 more per month, which may cause them to think twice about taking the plunge into homeownership.
To find out how much a person will pay, check out Freddie Mac's free Fixed-Rate Mortgage Calculator. For other free tools and resources, visit myhome.freddiemac.com.
Don't let current rising interest rates prevent the purchase of a home this year. Experts suggest that while rates have risen recently, historically speaking, it is still an overall great time to buy.
© Copyright 2018 The Daily Herald
Article used with permission of Florida Realtors.Org