Rising Rates Are Affecting Affordability


Interest rates are shooting up; how does that affect buyers’ affordability?


Interest rates have increased recently; they’ve crested 5% on a 30-year fixed home loan.
They’re still low compared to historical averages, but with what’s happening with the economy and inflation, the cost of everything is rising. Escalating interest rates will affect buyers’ affordability. 

A 1% higher rate increases your monthly payment by about 10%. For example, a 30-year fixed loan with a 4% interest rate might cost $2,000 per month, but when the rate climbs 1%, that monthly payment will be $2,200. That extra 10% you’ll pay monthly is simply going to the bank; it’s not giving you anything more than you had. 

 

“Escalating interest rates will affect buyers’ affordability.”

 

The other day, interest rates at two of the larger institutions in our Madison market were 5% and 5.125%, which is shocking when we recently were in the 3.5% range. However, let’s look at it a different way; if you have your money in other investments or IRAs, your interest rates are much higher than that. Also, inflation is currently at a 40-year highmuch higher than 5.1%. So though our rates are trending upward, they aren’t appallingly high by any means. 

Many experts agree that we’ll continue to see rates tick up until buyers get to the point where they refuse to pay. There are programs available to help you in the short term; adjustable-rate mortgages, for example. 

I hope this answered a few of your questions, but if it brought up additional ones, you can always reach out directly via phone or email. We would love to help you.

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