Interest rates have risen a little over the past few months and that can certainly affect the Real Estate Market in many different ways. Both buyers and sellers should understand the positives and negatives of slightly higher interest rates and what steps they can take to help achieve their own personal real estate goals. Throughout this article we will cover a few of these, but there are many others that we won’t be able to discuss due to space restrictions.
We can start with the buyer side of this topic and what some of the pros and cons are when interest rates increase a little. The first negative aspect is the obvious one which is the monthly payment they are going to be paying goes up as well. How much it goes up depends on how much you are borrowing and the interest rate. Average increase is approximately $180 to $200 per month on a $300,000 loan. This may be manageable for some people, but for others it may be outside their comfort zone. This means they may have to lower their target purchase price. There are certainly some who might not qualify for that loan anymore due to income to debt ratios. This is another negative of higher interest rates, the fact that it can lower many buyers purchasing power.
We discussed a couple of negative aspects of higher interest rates for a buyer, but what about the positive side of things. This is a little bit tricky, but you should get my point as we proceed. Some buyers will opt to not buy a new home right now because the rates have increased. They will put off their plans for a year or two in hopes of rates lowering. This means for the buyers who are moving forward with purchasing a home, they will have less competition when making an offer because there are fewer buyers out there. Less competition also means you likely might not have to offer over asking price like before when there was a lot of competition.
On to the sellers and how they can be affected by higher interest rates. There are not many positives for sellers when rates start to tick upwards. However, one possible positive could be that the buyers who are out there want to move quickly with their offers because of the fear of interest rates going even higher. The negative side of higher interest rates for sellers are many. Fewer buyers and less competition is never a good thing for sellers. Also having fewer buyers that qualify to purchase the property can certainly hurt a sellers ability get more for their home.
So, what are some solutions for buyers to consider when interest rates tick upwards. First thing is to be realistic with expectations. A 5 percent or 5.25 percent interest rate is still a very good rate for a 30-year fixed mortgage. Not too many years ago 6.5 percent or 7 percent was a decent rate for a 30-year fixed mortgage. Another thing is to consider how long do you think you will be living in the new home. You can always refinance to a lower interest rate if the rates do drop back down. Another option is to buy your interest rate down a little bit. This is done by paying a point or so up front to get a half a percent or so lower interest rate. Talk with your lender about what options they can offer you. Increasing your down payment will definitely lower your payment, and it could also lower your interest rate because you are at a lower loan to value ratio.
These are some of the things to consider with interest rates that have risen a little. Obviously, there are many more things to look at and every situation is unique. If you would like to have a confidential meeting to discuss your own situation and hear what my 20 plus years in the business would advise, then give me a call. <
This article was written by Matt Trudel, Broker and Owner of Five Star Realty, Windham, 207-939-6971.