Interest Rates on the Rise and What it Will Cost You

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by Mario & Jennifer Ruiz  10/18/2018

“There’s no doubt that, with rising interest rates, homebuyers are going to be increasingly stretched to afford homes that have become extremely expensive in the past few years,” said Aaron Terrazas, senior economist with real estate website Zillow, which just released an…

 

 

Buying a home? Here’s what rising mortgage rates will cost you

 

Buying a home? Here’s what rising mortgage rates will cost you

Mortgage rates are jumping, delivering a one-two punch to potential buyers already dealing with home prices that have risen sharply over the past few years.

“There’s no doubt that, with rising interest rates, homebuyers are going to be increasingly stretched to afford homes that have become extremely expensive in the past few years,” said Aaron Terrazas, senior economist with real estate website Zillow, which just released an analysis of the impact of rising mortgage rates.

“Monthly mortgage payments for the typical home are 15.4 percent higher than they were in August 2017. The median home value is 6.5 percent higher over the past year. For someone buying the median U.S. home, their monthly mortgage payments are $118 higher, or $1,416 each year,” said the report.

Zillow noted that higher mortgage payments “reflect the combination of increased home values as well as the higher interest rates for buyers.”

Indeed, mortgage giant Freddie Mac on Friday reported that the rate for 30-year fixed mortgages has hit a seven-year high — and experts expect home-loan rates to continue rising. Interest rates tend to increase in response to inflation, which is picking up steam for the first time in decades.

Although no one currently predicts the sort of rapid wage and price acceleration that occurred during the 1970s and early 1980s, U.S. economic growth is now high enough to make inflation a mounting concern.

Terrazas expects that rates on 30-year fixed-rate mortgages, which jumped 0.19 percentage points Friday to 4.9 percent, will creep up another tenth of a percentage point before year-end and will rise to 6 percent by the end of 2019. Although these rates are still relatively modest in historic terms, 6 percent would be a near doubling of the low rates buyers enjoyed in the wake of the Great Recession.

Notably, even a modest rise in interest rates has a big impact on homebuyers, particularly in high-cost markets, adding hundred of dollars onto the monthly cost of a mortgage.

For potential buyers, the best advice for dealing with this rising-rate trend is to work on the two things in your control — your credit rating and your down payment. Consumers with a top credit score and with at least 20 percent of the purchase price as a down payment get the lowest rates available, said Terrazas. Those with poor credit and less-substantial down payments are likely to borrow at considerably higher rates, which could push affordability out of range.

On the bright side, the ultra-hot housing market of the last few years appears to have cooled somewhat, which means fewer homes are receiving multiple offers and less need to bid above the asking price to get the house you want.

How much might rising rates affect you? Here’s a look at median home prices in all 50 states, per the experts at Zillow, and the monthly payment for the average mortgage based on today’s 4.9 percent rate versus the predicted 6 percent. This shows how much payments would change each month and over the life of the loan. (These figures assume that buyers made a 20 percent downpayment and financed just 80 percent of the total home price.)

Here are the state-by-state findings, listed alphabetically:

Find out at cbsnews.com

 

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