Interest rates are always an issue when purchasing a home. This year, they may be an even bigger issue.
“Mortgage brokers are telling buyers that rates are rising, and if they are planning on buying, they need to be doing it as soon as possible before rates go up,” says Linda McCoy, board president of National Association of Mortgage Brokers (NAMB).
If you finance the purchase of a property, as opposed to paying for all of it with cash, a mortgage interest rate is what it costs you per month to finance your home/property.
“Your interest rate is effectively the lender’s compensation for letting you use its money to purchase your property,” says Aly J. Yale in an article for The Balance.
Rates for a 30-year fixed mortgage were around 3% for much of 2021, but economists at the National Association of Realtors say they should be closer to 3.5% and possibly higher by year’s end. Mortgage Bankers Association thinks rates will rise to 4% this year.
For a 30-year mortgage on a $300,000 home, the difference between 3% and 4% would be an additional $147 per month. The question facing mortgage brokers is whether that’s enough to impact purchasing decisions in 2022.
In her experience, McCoy says buyers are often willing to pay more if they get what they want. Still, today’s dollar does not go as far as it did six months ago, and people are spending more today on food, clothing, and other necessities.
Meanwhile, higher rates mean buyers will qualify for a little less of a house with their debt-to-income ratios.
“When people hear that rate are going up, it can often put them in sort of a panic mode, says McCoy. “Many of those people have been busy putting off shopping but, it becomes a primary goal to get the loan done quickly when they hear about increases in the interest rate on the news, social media, the Internet, or from friends and family.”
One more bit of good news hit when rates declined slightly in the third week in January after weeks of increases.
As for sellers, McCoy says they should not waste time.
“This is the best time to sell, when values are high,” says McCoy, who believes the U.S is still in a seller’s market.
“There is a shortage of inventory to meet the demand of homes for sale and a great number of homes are getting multiple offers as soon as they hit the market,” says McCoy. “Consistently, buyers are having to pay more than the asking price to buy a home.”