Rising interest rates are becoming a reality but how do the rise in interest rates affect you if you are buying a home? The reality is the economy is strong, unemployment is low and consumer confidence in their jobs is high, which equals a strong buyer demand for housing and mortgages. Add the fact interest rates have been at historical lows for several years now and you can only expect to see rates begin to rise.
So what does that actually mean to you when you are thinking about purchasing a home? Lets start with the basics, what are interest rates? Interest rates are essentially the cost to borrow money. The higher the rate the more expensive it is to borrow money. When things are more expensive, in this case money to buy a home, then you can afford less.
Higher interest rates equal higher cost to borrow funds which ends up affecting the amount you can borrow. For those consumers who may be maxed out at borrowing a certain amount, in this example lets say $300,000. If the rates go up the amount the person could borrow would go down, lets say $290,000.
The higher interest rates caused the expense of borrowing to be lower which means a higher payment, however in order to stay under a certain payment the amount borrowed had to be adjusted downward. This lower amount borrowed equals a lower sales price a consumer can qualify for.
Expect interest rates to continue to rise as the economy continues to be strong. I just don’t see rates going down at all. So if you have been thinking about buying a home just realize now may be the time to buy while rates continue to be low.
With the heart of a teacher I strive to educate my clients so they can be better informed. I strongly believe an informed consumer makes better decisions and are less likely to be taken advantage of.
Have questions about this or other topics, don not hesitate to contact me.
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Luis Cuevas, Realtor®
RE/MAX Cross Country
1990 Justin Road
Highland Village, Texas 75077
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