How do interest rates affect your buyers’ wallets?
We’ve all heard the conversations this spring – interest rates are on the rise. But what does that mean in dollars and cents for your buyers this summer?
Consider this: fixed mortgage rates in April were almost 2 percentage points higher than a year ago, which is a difference of literally thousands of dollars each year.
- Higher rates affected mortgage demand right away. In April, applications were down 40 percent compared to 2021.
- People buying a $250,000 home with a 30-year fixed loan of 5.3% would pay $3,300 a year more compared to if they got a mortgage in April 2021, according to figures from our friends at NAR. Divide that by 12, and it’s $275 more per month.
- Bump that sales price to $429,000, the current nationwide median home price, and that extra payment rises to $5,640 per year.
- A 2 percentage-point rise in rates adds about $115 to the monthly payment for every $100,000 you borrow on a 30-year loan.
- Interest rates and inflation are a double whammy for homebuyers right now. One researcher from NAR said buyers could end up searching for homes $40,000 cheaper than they would have a year ago due to the rising costs.
No matter when or at what rate a home is purchased, we all know it’s a significant investment, so it could certainly still be a great time to buy for many of our friends and future customers. But it’s just as important to understand how even the smallest change in rates can cost – or save – thousands of dollars when we’re talking about real estate.