We hear it every winter: “I’m thinking about buying a house this year, but I’m going to wait until the spring and see how things are at that point.” Sellers say it, too; they want to wait until spring.
That’s fine, but as I said in our January newsletter, whether you’re buying or selling, you should aim to do so sooner rather than later. Let me explain why.
How Interest Rates Impact Your Monthly Mortgage Payment
Why do I suggest you buy sooner rather than later? Because interest rates are rising. That means that your monthly payment will rise, too. Take a look at this chart showing how interest rates impact monthly mortgage payments.
Let’s just focus on the middle column, where the home loan amount is $400,000. That’s pretty close to our current median sales price, so it’s a good example to use.
With a mortgage interest rate of 3%, your monthly payment would be about $1,686. But with a 3.5% interest rate, your monthly payment goes up $110 to $1,796!! That’s an extra $1,300+ that you’re paying every year just because you bought when the interest rate was higher.
“Yeah, but Cari, mortgage rates don’t rise that quickly, we’ll be fine.”
Actually, at the start of 2022, the rate on a 30-year fixed-rate mortgage was 3.22%. Guess what it is now? As of last Thursday (Feb. 10), it had risen to 3.69% — almost a half-point higher in just about six weeks.
And if you click that link, you’ll see that Freddie Mac says “rate increases are expected to continue due to a strong labor market and high inflation.”
But I’m Thinking About Selling, Not Buying
You might think rising interest rates don’t impact you as a homeowner who’s thinking about selling later this year, but that’s not the case.
As I said in last month’s newsletter, a rise in the interest rate is also big news for sellers. That Freddie Mac quote a couple paragraphs above? Here’s the full quote (emphasis added by me):
“Rate increases are expected to continue due to a strong labor market and high inflation, which likely will have an adverse impact on homebuyer demand.”
That last part is how it impacts everyone who’s waiting to sell. At some point, higher interest rates will discourage buyers from looking for new homes. When there are fewer buyers looking for homes, you’re less likely to have a bidding war on your home. When buyers are faced with higher monthly payments, many won’t have the luxury of offering more than your asking price.
(Also, if you’re going to sell this year, you’re probably also going to have to buy a new home. So everything above about buyers applies to you, too.)
Rising interest rates impact both buyers and sellers. You might be thinking, “I’ll wait to spring” to buy or sell. This year, waiting may cost you more. Act now if you can.