There are several schools of thought as to whether mortgage interest rates are going up, going down or remaining constant. At bankrate.com, the Bankrate analysts provide their predictions over the next week where the interest rates are headed. What we all can agree on is that if interest rates go up your buying power will be reduced. Actually, the effects can be staggering.
Over the last couple of years, we’ve experienced all-time lows in mortgage interest rates which have allowed consumers to purchase higher priced homes. Historically, interest rates have averaged around 6% which today we would consider as a high interest rate. I remember when interest rates were at 17% which we can’t even fathom today.
The government, with their quantitative easing policy of continuously printing money, has artificially kept interest rates at all-time lows which have resulted in a boom in the housing market. This coupled with the housing crash led to a robust housing market. Furthermore, as a result of the housing crash, home builders stopped building homes. Now that demand is back in the market, there are not enough homes for sale thus creating a housing market consisting of multiple offers and sales above the asking price.
Housing prices in Contra Costa County have risen over 20% in the last year and the trend will continue into the foreseeable future. Mortgage interest rates fluctuate from week to week but the trend is moving upward. Ben Bernanke, the Fed Chairman, has already said that he will start easing off on quantitative easing which will definitely result in rising interest rates.
What is the effect of a 1% increase in the mortgage interest rate? If the amount financed is $300,000 then a rise in interest rate from 4% to 5% would result in an increase in the monthly payment of about $187 per month. Furthermore, if you could only afford to finance $300,000 then the 1% interest rate hike would mean that you could now only afford a mortgage of $267,000. With housing prices going up and the uncertainty whether interest rates will rise, the result could mean that your dream home is now beyond your reach.
I am here to assist you with your housing needs. Please contact me at email@example.com or at 925-336-4938 for a free consultation.