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Andrew Hong's Blog

By Andrew Hong | Agent in Fremont, CA

Home Loan Rates Rising?!

The Home Mortgage market is changing significantly right now and it is going to affect the real estate market entirely.  Buyers all over are already starting to feel the pressure to buy now before it’s too late.  In fact, not many buyers know that a $400,000 mortgage at 4% has the same monthly payment as a $320,000 mortgage at 6%.  We may not be seeing 6% rates anytime soon, but it’s just a good way to keep everything in perspective.  The cost of money is going back up once again and a lot of people should know how it will impact their home purchase.

The average home mortgage rate for a 30-year loan is just hovering at 4% right now.  Just 3 months ago it was as low as 3.5%.  In fact, it’s at it’s highest it has been within the last year.  This increase in rate is very significant and every buyer really should be keeping their eye on it.  I wanted to put together an example to help people understand how much the interest rates can affect their purchase:

 

A person purchased a $500,000 home 3 months ago with an interest rate of 3.5%:

Home Purchase Price: $500,000

Down payment: 20% ($100,000)

Principal: $400,000

Interest rate: 3.5%

Mortgage payment: $1,796.18

PITI: ~$2,387.85

Total interest to be paid: $246,624.35

 

A person to purchase a $500,000 home today with an interest rate of 4%:

Home Purchase Price: $500,000

Down payment: 20% ($100,000)

Principal: $400,000

Interest rate: 4%

Mortgage payment: $1,909.66

PITI: ~$2,501.33

Total interest to be paid: $287,478.03

 

The difference in monthly payments between the two scenarios is $113.48.  This may not seem like too much to some people, but over time it really adds up.  This means that in just the first year of owning the home you are already paying an increase in monthly payments of $1,361.76.  Also, at the end of 30 years, you will have paid $40,853.68 in additional interest if you were to have the 4% rate during the entire lifetime of the loan.  Of course, these affects are compounded the higher the purchase price is.  Even more so if you are going to be using a jumbo loan.  I hope this helps people really keep interest rates into account.  If you ever have any questions, we are always available to help any way we can.

If you would like to learn more regarding the impact of increasing interest rates, here is a great article to read:

http://www.bloomberg.com/news/2013-06-06/home-loan-rates-near-4-send-buyers-scurrying-mortgages.html

Although the interest rates are seeing a rise recently, a lot of people should understand that the rates are still at an all time low.  Granted that we may be back into the 5% range within the next couple of months, the cost of money is still lower than it was a couple of years ago.  Below is a chart that will show you the interest rates over the past 8 years.  Even if they start to climb back up now, they are still considered low historically.

Interest Rates

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