Setting aside what Buyers can qualify for in an environment of rising interest rates, let’s take a quick look at what affect interest rates have on payments when they rise.

Two months ago buyers with locked in rates that were looking to purchase now, had some very attractive rates to choose from. Setting aside variable verse fixed, let’s look only at what fixed rates cost when they rise.

I’m going to use a One Million dollar mortgage balance ($1,000,000) and a 25 year amortization for simplicity. 

If you have a 5 year fixed rate of 2.7% your payment would be $4,579.88 per month. Over the term you would have paid down roughly $150,000 in principal.  If the rate were to be 4% jumps to $5260.21 per month and after five years you would have paid down just under $130,000. 

So less equity built up, approximately $40,000 more in monthly payments which results in way more interest being paid. The interest to principal costs are almost inverted with this jump in rates.

Of course, this is a simple calculation and a 4% interest rate historically is still pretty darn good. Looking over the long term (which owning real estate always should be viewed) the benefits, including the financial benefits, are huge. 

If you’re in need for a mortgage professional reach out and I will connect you. A good mortgage pro can make the world of difference when setting up your financing.