How changing interest rates affect homebuyers

- HOW- changing INTEREST RATES affect homebuyers When interest rates change, it affects homebuyers and homeowners in different ways. When interest rates rise, it lowers the borrower's price point. The higher rate equals higher payments, thus reducing what a buyer's income can afford in a mortgage. Together with the normal fluctuations in inventory, the interest rate can cause housing demand to increase or decrease. We've compiled what you need to know in order to make an informed decision when you go looking for a mortgage. The Federal Reserve The Federal Reserve has announced that it will increase mortgage rates for 2015. This will affect both homebuyers, and people looking to refinance. Let's take a look at how these changes will affect you. Fixed Rate vs. Variable Rate Fixed Rate Mortgage Adjustable Rate Mortgage A fixed rate mortgage features equal With an adjustable rate mortgage, the payments and will not be affected by initial payments are typically lower. If rising interest rates. However, if interest interest rates fall, the homeowner can rates drop to below what they were take advantage of lower payments when the mortgage first started, it can without having to refinance. If rates rise be beneficial for homeowners to however, individuals can be stuck with refinance at the current rate. higher payments than expected. How interest rate changes affect a smaller loan A 1% increase in interest rate has a relatively minor effect on a smaller, shorter term loan such as an auto loan. $25,000 Auto Loan 3% 4% Interest Rate Interest Rate $449/month (60 mo.) $460/month (60 mo.) $1,953 $2,624 total interest paid total interest paid How interest rate changes affect a mortgage On a mortgage however, just 1% increase in interest rate can mean you pay back tens of thousands of dollars more. $100,000 Mortgage 3% 4% İnterest Rate Interest Rate $422/month (30 yr.) $477/month (30 y.) $51,777 $71,870 total interest paid total interest paid When interest rates fall Falling interest rates can drive demand for housing. When interest rates are lower, developers are willing to borrow more money to build neighborhoods, and consumers are willing to borrow more money to buy homes. SOLD When interest rates rise Rising interest rates can slow demand for housing. First-time buyers can be forced to continue renting. This affects the whole housing chain as people looking to 'move up' struggle to find buyers. FOR RENT Interest rates throughout the years Over the last 40 years, interest rates have followed a downward trend while house prices have increased. Interest Median House Price Rate 20% $300,000 15% $225,000 10% $150,000 5% $75,000 1975 1985 1995 2005 2015 i Tips for Selecting or Refinancing Your Mortgage 1. Refinancing Can Save You Thousands Even a slightly better rate on your mortgage can end up saving you tens of thousands of dollars in interest. 2. First Time Buyers Should Act Swiftly When interest rates rise, it becomes harder for first time buyers to qualify for a mortgage. First time buyers should speak with a qualified mortgage broker to find out their options before rates rise. 3. Pay Attention to Your Adjustable Rate Mortgage Those with an adjustable rate mortgage may find that their payments go up quite a bit when interest rates rise. 4. Stay Informed by Talking to a Qualified Mortgage Loan Originator Whether you're hoping to buy something new, re-finance your current home or move up to a bigger home, you need to find out all of your options before you act. Get informed by visiting a local mortgage loan originator, who can help you investigate all your options. Presented by |LuxuryMortgage www.luxurymortgage.com Retail Toll Free: (866) 633-8900 EQUAL HOUSING LENDER Equal Housing Lender. ©2015 Luxury Mortgage Corp. This is not a commitment to lend. Restrictions apply. Some products may not be available in all states. NIMLS # 2745. 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Luxury Mortgage Corp., luxurymortgage.com® and Luxury Mortgage® are registered service marks of Luxury Mortgage Corp. All Rights Reserved. This material is not from HUD or FHA and has not been approved by HUD or any government agency. Sources: http://time.com/money/3668217/rising-interest-rates-smart-moves-2015 http://www.washingtonpost.com/blogs/wonkblog/wp/2014/11/07/good-news-interest-rates-will-likely-rise-in-2015 http://www.investopedia.com/articles/mortgages-real-estate/08/interest-rates-affect-property-values.asp http://www.nytimes.com/2014/09/28/realestate/when-mortgage-rates-rise.html?_r=0 http://www.insideindianabusiness.com/contributors.asp?id=732 http:/www.investopedia.com/articles/pf/07/mortgage_rate.asp