Interest rates are in the news: Projected to rise from their historically low levels as the Federal Reserve winds down Quantitative Easing. Is this a major problem for the prospective buyer? The Answer: “Probably Not.”
Obviously, buying a home sooner rather than later in a rising interest rate environment may be a good idea. However, it is unlikely that changes in interest rates of the magnitude currently expected will have a controlling impact on the home purchase decision.
What do rising interest rates mean? As of March, the 30 year mortgage interest rate was approximately 3.8 percent. On a median priced $202,000 house, monthly payments would be approximately $1231 per month (P&I: $847; Taxes: $219; Insurance $75; PMI $90). A .5% interest rate increase to 4.3 percent would raise payments to $1,284.
Rather than worrying about interest rates– over which they actually have little control outside of shopping around among lenders– potential home buyers need to focus on the availability of a mortgage money—typically regional and community banks and credit unions as well as national lenders–and staying within a reasonable budget.