The cost of interest rates rising can be a very devastating impact to both buyers and sellers. If you are a buyer, the impact is one sided, but if you are a seller of a home and then plan to buy another home, the impact is magnified.  

Buyer:

Take a look at the impact of your payments each month and your buying buyer. These are increase payments each money with a baseline of 4.000% interest rate. If rates go up from 4.000% to 5.000%, then your payment will go up $416.66 per month on a $500,000 loan amount.

 

Increase in payment for each 1/4 point rise in mortgage rates

Financed                4.250%      4.500%    4.750%      5.000%      5.250%      5.500%      6.000%

$500,000              $104.17     $208.33    $312.50     $416.67    $520.83     $625.00     $833.33

$750,000              $156.25     $312.50    $468.75     $625.00    $781.25      $937.50    $1,250.00

$1,000,000           $208.33     $416.67    $625.00     $833.33    $1,041.66   $1,250.00  $1,666.67

 

 

Over the first 5 years of your loan, it will cost you an extra $25,000.

How much the increased rate will cost you over the next 5 years.

Financed             4.250%        4.500%       4.750%      5.000%        5.250%       5.500%       6.000%

$500,000              $6,250        $12,500      $18,750     $25,000     $31,250       $37,500      $50,000

$750,000              $9,375        $18,750      $28,125     $37,500      $46,875      $56,250      $75,000

$1,000,000           $12,500      $25,000      $37,500     $50,000      $62,500      $75,000      $100,000

 

 

If you are selling a home and won’t get a mortgage on a new home, should you care? The answer is less obvious, but the answer is yes. If you are selling your home and potential buyer is looking at your home their buying power is reduced as rates go higher. A 1% move from 4.000% to 5.000% on a $500,000 loan means your potential buyer can afford only $412,724.

How much less money a buyer can afford as rates go higher

Financed                4.250%        4.500%        4.750%        5.000%       5.250%       5.500%       6.000%

$500,000              $478,181     $456,363     $456,363    $412,724    $390,907     $369,087   $325,450

$750,000              $717,272     $688,325     $651,815    $619,087    $586,359     $553,630   $488,174

$1,000,000           $956,363     $912,724     $869,087    $825,450    $781,813     $738,174   $650,900

 

Then if you want to take your proceeds and buy a new home, your buying power is affected the same as the people looking to buy your home. So if you can afford a $750,000 loan today and rates move to 5.000%, you can now only afford $619,087. This is a mere 83% of what you could afford prior to rates moving.  If we see a 2 point move up in rates, that same buying power drops to $488,174 or only 65% of what you can afford today.

How much less money a buyer can afford as rates go higher

 

Financed               4.250%       4.500%       4.750%        5.000%        5.250%       5.500%         6.000%

$500,000              $478,181    $456,363    $456,363    $412,724    $390,907    $369,087    $325,450

$750,000              $717,272    $688,325    $651,815    $619,087    $586,359    $553,630    $488,174

$1,000,000           $956,363    $912,724    $869,087    $825,450    $781,813    $738,174    $650,900

 

We live in a very unique market right now. Most every “expert” believes that home prices will continue to move up a little bit. Some markets will, of course, move faster than others. Mortgage “experts” and economists also believe mortgage rates will continue to rise in 2017 and even into 2018. If the economy does start to grow at 2.5%-3.0%, the mortgage rates will move up much more rapidly than we would like to see. But as I tried to demonstrate above, you can’t get home appreciation over the short term to offset the increase in rates that will most likely occur. If selling or buying is in your future, waiting will only make selling your home harder and slower. Waiting will allow fewer people to qualify for your home. Then as you move to your new home, you lose again. Don’t wait for the “Spring Market”. Make you own Spring Market and get that home on the market now.

If you would like to discuss the topic discussed here or any other financial topics, please feel free to reach out to me and we can have any business related discussion you think is important.

Bruce Beddard NMLS # 207029 Company NMLS: 2551

1375 E. Woodfield Rd. Ste. 140 Schaumburg, IL 60173

Bruce@dkmortgage.com Dkmortgage.com/beddard

Cell: 847.772.1780

I have been working with Bruce for over 16 years.  He has always helped my client obtain the best rates and give the best service.  He is a gentleman and his main objective is to help my clients.  Please feel very comfortable contacting him by his cell phone.  

 


For more information please contact Barry Newman your friendly, experienced and knowledgeable North Shore realtor at 847.921.1666 or email at barrynewman@atproperties.com.

For more information about neighborhoods in The Glen, please visit our page The Glen.

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