The Tale of Two Interest Rates

We have enjoyed a remarkable period of low Mortgage Interest Rates but recent action by the Feds indicates that may be changing. This ultimately can affect your Purchase Power in a dramatic way meaning that all things equal the home you could afford last month may be out of reach tomorrow!

The nation's leading mortgage trade group, the Mortgage Bankers Association (MBA), forecasts rising rates in 2017. Unemployment is down, wage growth (and therefore inflation) are on the rise, and consumers are spending more on goods and services.

These trends are great for the economy but bad for mortgage rates.

MBA says to expect a rate hike by the Federal Reserve in December 2016. This will add to upward pressure on mortgage rates.

Recently, the Chicago Federal Reserve bank president stated he expects three such rate hikes by the end of 2017, according to MarketWatch.

 As you can see in the chart above the interest rate in 1985 was at 11.5%, in 2000 it was around 7.5% and today we are just under 4%. Even if we break 4% that is still a great rate especially in comparison to the historical data but pay close attention to the way it affects how much home you can afford. With a mortgage payment under $1,000 dollars you could afford to purchase a $210,000 home while at 7.5% you will be in the $140,000 range, a difference of nearly $70,000! If you have been shopping for a home recently I am sure you know the difference the extra $70,000 makes.

Here is another example that gives you an idea of how the rate can help or hurt your buying power

Truthfully it is hard to guess what will happen and Interest Rates still remain extremely attractive. Remember it wasn’t very long ago when 5% was considered too good to be true and we are still hovering under 4%.

However, if the time is right, you might want to move quickly to lock in a low rate to maximize your purchase power. 

Having an experienced professional on your side while navigating the real estate market is the best way to guarantee that you can make the home of your dreams a reality!  What are you waiting for?  Contact your local real estate specialist with Forefront Real Estate!