Numbers Count: How rising rates may affect mortgages
Numbers count. They matter to bankers and to prospective homebuyers, sellers, and real estate professionals. Here’s my take on the key numbers on the housing market this week.The numbers: The average interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to 4.09% last week from 4.10% the prior week, and the average rate on jumbo mortgages rose to 4.04% from 4.03% the week before, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending Sept. 11. What counts: With the Federal Reserve considering raising rates before the end of the year, now is a good time for a refresher on what rising rates may mean for homeowners and potential buyers.
- The outlook. Economists seem to agree with our Chief Economist Scott Anderson that rates will rise gradually — likely 25 basis points initially, and perhaps another 25 basis points in coming months. “No one is expecting rates to move substantially in the months ahead given global economic weakness. We’re likely to see about 50 basis points of increase over the next 12 months,” Jonathan Smoke, chief economist for realtor.com, told HousingWire.com.
- The added costs. For perspective, a 25-basis point increase in the interest rate on a $250,000 mortgage loan would amount to an additional $35 a month. At 4%, a borrower’s monthly interest and principal payment is $1193.54. At 4.25%, the monthly payment rises to $1229.85, and at 4.50%, the payment climbs to $1,266.71.
- Do your math. Obviously, the potential change in a monthly payment depends on the size of the mortgage. I encourage you to do your own calculations by using an online mortgage calculator, such as the monthly payments calculator on BankoftheWest.com, or talk to a mortgage banker to help understand the potential impact of rising rates.
- Finally, don’t panic. Yes, rising interest rates will add to the cost of borrowing for a home. Rates on first mortgages as well as home equity loans and lines of credit will likely increase as the Federal Reserve raises rates. That said, any initial increase is expected to be small, and subsequent increases are expected to be gradual. If you’re in the market for a home, locking in a rate on a mortgage sooner rather than later may save you money. But, for those who need time to find the right home or save up for a down-payment, it doesn’t appear the Federal Reserve’s rate increase plans are going to knock potential homebuyers out of the market.