As interest rates begin to rise buyers in the lose purchasing power. Simply stated, for every 1% interest rates rise, a buyer will lose 10% purchasing power. So with a rate of 4.25% on a 200,000 loan, the payment would be $983/month.
When, not if, interest rates rise to 5.25% a buyer would have to have a $180,000 loan to keep nearly the same payment. In this example at 5.25% interest rate on a $180,000 loan, the payment would be $993/month. So either the buyer will have to increase their down payment by $20,000 or they have to accept a less expensive home to keep the same payment.
Just in the last 6 months we’ve seen rates move from 3.5% to their current levels around 4.0%. So buyers already lost 5% in purchasing power, and the decline is likely to continue into 2016 and beyond. Especially with the Fed’s anticipated rate rise next week..
Check out the chart that shows the changes in purchasing power and payments as interest rates rise.
In addition in this rising home price environment the impact is exacerbated because while the purchasing power decreases from higher rates, home prices are increasing. So the home that you qualified for a few months ago may be out of your financial reach today.
Most experts agree that interest rates will be on the rise this year. So if you plan on making the move towards owning your home, why not act now while you get the biggest bang for your buck. It could be the difference of getting your dream house or having to settle for 3rd or 4th choice. Or the difference between buying in a coveted school district or another town that has substandard academics.
It doesn’t matter if you’re purchasing a vacation home in the Charleston area, a first time buyer, or a seasoned investor, now is a great time to buy. Low interest rates combined with low home prices are creating historical opportunities. Plus with as little as 3% down with NO mortgage insurance, it’s very easy to qualify.