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Impact of Rising Rates When Buying a Home

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There has been much volatility in the 30 year mortgage rate over the last few weeks. According to Freddie Mac, rates have soared almost a half of a percent in just the last four weeks and now are as high as they have been in the last six months.

Frank Nothaft, vice president and chief economist of Freddie Mac, explained:

After Europe made strides in its debt situation, investors left the security of U.S. Treasury debt causing bond yields to rise and mortgage rates along with them.  Interest rates for 30-year fixed mortgages are now almost a half percentage point higher than the record low set in mid-November.

No one knows exactly what will happen as we move forward. The only thing we know for sure is that rising rates have a tremendous impact on a buyer's payment. There are home buyers standing on the sidelines waiting for the prices of real estate to bottom out. If you are one of these buyers, be careful. You should be as concerned about the monthly COST as much as you are concerned about the PRICE.

Below is a table showing the impact rising rates have on the monthly payment - even if prices continue to soften:

Bottom Line

You want the best value possible whenever you purchase anything. When buying real estate, the best value is not determined by price alone. Value is determined by price and financing costs. Take both into consideration when timing your purchase.

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10 Responses to “Impact of Rising Rates When Buying a Home”

  1. James Barath in Northwest Indiana December 10, 2010 at 1:20 pm # Reply

    In a cycle of real estate where the majority of home buyers are first-timers, they have become immune to historic low interest rates chatter. They just are not aware that interest rates were in the mid 7’s and even higher less than a decade ago.

    You add falling home prices to the mix and home buyers are just waiting for a “great deal.” If only everyone was as analytical as this simple chart would illustrate, home sales would be out the roof.

  2. Bonnie Westbrook December 14, 2010 at 4:53 pm # Reply

    James is correct about his assessment of first time buyers……they are shopping for the ultimate deal and really don’t expect rates to rise or affect their payment. They have been shopping at the discount trough for 2 years and think it will only get better for buyers: declining home prices and low interest rates. As you have been preaching – this can change quickly. By the time we all know that the bottom of the housing has gone, buyers will be paying more for less.

Trackbacks/Pingbacks

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    […] We believe that in most parts of the country prices will in fact soften in 2011. Price is the major concern for anyone selling a home. When you are buying, COST should be your primary concern however. Your monthly payment (cost) is definitely impacted by the price of the home you purchase. The other major component is the interest rate. Waiting for prices to bottom out while rates are increasing can wind up costing you more over the life of the mortgage (see chart here). […]

  2. Christi Reece’s Real Estate Blog » Blog Archive » 3 Questions You Must Answer Before Buying a Home - January 7, 2011

    […] We believe that in most parts of the country prices will in fact soften in 2011. Price is the major concern for anyone selling a home. When you are buying, COST should be your primary concern however. Your monthly payment (cost) is definitely impacted by the price of the home you purchase. The other major component is the interest rate. Waiting for prices to bottom out while rates are increasing can wind up costing you more over the life of the mortgage (see chart here). […]

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    […] by The KCM Crew on December 10, 2010 · 4 comments […]

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    […] in most markets. However, if you are buying, COST should be more important than PRICE. Cost can be dramatically impacted by rising mortgage interest rates. Do the math and decide if now is the […]

  5. 3 Questions You Must Answer Before Buying A Home | - January 16, 2011

    […] We believe that in most parts of the country prices will in fact soften in 2011. Price is the major concern for anyone selling a home. When you are buying, COST should be your primary concern however. Your monthly payment (cost) is definitely impacted by the price of the home you purchase. The other major component is the interest rate. Waiting for prices to bottom out while rates are increasing can wind up costing you more over the life of the mortgage (see chart here). […]

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    […] We believe that in most parts of the country prices will in fact soften in 2011. Price is the major concern for anyone selling a home. When you are buying, COST should be your primary concern however. Your monthly payment (cost) is definitely impacted by the price of the home you purchase. The other major component is the interest rate. Waiting for prices to bottom out while rates are increasing can wind up costing you more over the life of the mortgage (see chart here). […]

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