Ask Taylor
724-553-1008

What Does a 1% Rate Increase Do to Your Monthly Payment?

What Does a 1% Rate Increase Do to Your Monthly Payment?

Mortgage rates have been rising lately, and you may be wondering whether to put your real estate plans on hold or charge ahead into the marketplace to find your custom dream home. The reality is that interest rates in a variety of markets, while they have certainly ticked up in recent months, are still close to historic lows. 

 

If you decide to wait for a lender to offer you a better deal than you’re able to find right now, you may be waiting for quite a long time. The Federal Reserve has signaled very clearly that they intend to keep raising rates in an effort to stem the tides of rising inflation. Whether this plan will work or not remains to be seen, but it’s fairly certain that they intend to stick to their word for the foreseeable future. 

 

As long as you understand what’s happening, you’ll be able to navigate the real estate market with ease during a period of rising rates and maybe even pick up the deal of a lifetime. 

 

How Interest Rates Affect Real Estate Prices

 

While mortgage rates determine the amount of interest that you’ll pay each year as a percentage of your loan amount, these rates interact with the home’s absolute price to determine the absolute amount that you’ll need to set aside for monthly payments. 

 

For example, using our Enclave at Highpointe townhomes as a base, we can see how just a 1% increase in the interest rate changes your monthly payments – and the amount you pay over the life of the loan. (Amounts are based on 20% down on the sales price with a 30-year fixed rate mortgage. Interest rates are for example and subject to change.)

 

$550,000 Sales Price

($440,000 Mortgage)

Interest Rate 4.99% 5.99%

Monthly P&I $2,359 $2,635

 

Homeowner pays an additional $276 EACH MONTH at the higher interest rate. 

 

$750,000 Sales Price

($600,000 Mortgage)

Interest Rate 4.99% 5.99%

Monthly P&I $3,217 $3,593

 

Homeowner pays an additional $376 EACH MONTH at the higher interest rate.

 

We can see the same effect when we use our Single Family Homes as a base: 

 

$950,000 Sales Price

($760,000 Mortgage)

Interest Rate 4.625% 5.625%

Monthly P&I $3,907 $4,374

 

Homeowner pays an additional $467 EACH MONTH at the higher interest rate.

 

$1,200,000 Sales Price

($960,000 Mortgage)

Interest Rate 4.625% 5.625%

Monthly P&I $4,935 $5,526

 

Homeowner pays an additional $591 EACH MONTH at the higher interest rate.

 

Prices and Rates Expected to Climb

 

Today, there is less overall volatility in the real estate market than there has been since 2020. As demand stabilizes, home prices are starting to normalize as well. But builders are still dealing with the unpredictable costs of products and supplies. In general, demand for materials is just too high as manufacturers strive to keep up, and prices reflect that. 

 

Additionally, demand for new homes isn’t letting up anytime soon. The U.S. currently has underbuilt housing by millions of homes. Even as the brisk pace of building continues, and interest rates climb, it will take years before supply and demand level out, continuing to buoy the price of homes. 

 

Getting a Mortgage May Become Tougher  

 

In addition to higher prices and increasing rates, lending standards may increase and make attractive mortgage offers harder to come by. When lenders increase standards, there is a good chance that the mortgage offers you see today will not be available to you at the same terms in the future. 

Our recommendation: Buy sooner rather than later. If you have anything that you’re concerned about, talk to our Preferred Lenders about finding the best financing options for you! Overall, there are many good reasons to seize the opportunity and purchase a new Infinity Custom Home today.

Related posts

Leave City Life Behind… Head for the ‘Burbs

Once upon a time, you loved city life. But recently, open space, fresh air, and peace of mind sound...

Continue reading

Why Rising Interest Rates Make Today A Great Time To Buy Your Dream Home

Mortgage rates have been rising lately, and you may be wondering whether to put your real estate...

Continue reading

Housing Market Update: Setting Expectations for 2022

Real estate markets constantly change, responding to larger economic forces, but the last two years...

Continue reading