How Rising Interest Rates Will Affect Homebuyers | The Loken Group

What do interest rates really mean for homebuyers? And how, specifically, do rising interest rates affect your ability to buy a home? If you’re a homebuyer keeping a close eye on today’s rising interest rates, these questions have probably crossed your mind. After all, buying a home is an important decision and interest rates plays a huge factor in determining what your mortgage payments will be. We sat down with Kelly Rogers, Market Leader at Movement Mortgage and one of the leading mortgage lending professionals in the Houston area, to discuss her predictions on how rising interest rates will affect buying power, as well as possible solutions that will help you as a homebuyer.

1. How do interest rates effect how much home I can buy?

Interest rates play a huge role in home affordability. When interest rates are low, home ownership is more affordable. If you don’t have to spend that much money on interest, you may be able to take on a larger loan. Conversely, higher interest rates increase the long-term cost of owning a house. For example, in a rising rate market such as the one we are in right now, the difference between 4.5% and 5.5% could reduce your buying power by about 10-20%.

2. Are interest rates expected to increase?

Interest rates are expected to continue increasing. In fact, the Federal Reserve have announced that they expect to raise interest rates one more time this year, as well as 3 more times in 2019, which could make a big difference in what you could afford a year from now as compared to what you could afford today.

3. Do you think interest rates will decrease?

No –  interest rates have been artificially low for a long time. We can likely expect to level out at 6%, meaning that we can afford less house than we could 1 or 2 years ago. That being said, we can afford more house today than we can next year.

4. What is the solution for higher interest rates?

Luckily, there are several solutions that will help buyers be able to afford their housing. Lenders will start to offer buy downs on the interest rates, which is a great solution and common practice in the mortgage industry, while some people will start to lean towards adjustable rate mortgages. The interest rate on an adjustable rate mortgage might change monthly, every six months, or annually, depending on the terms of the mortgage. There are also other creative solutions that your lender can provide to you, which is why it’s critical to consult with a good lender that will provide those solutions to you.