HOW LONG DOES NEGATIVE INFO STAY ON OUR CREDIT REPORTS?February 9, 2017
OPEN PERMITSFebruary 9, 2017
How much does a 1% increase to Interest Rates hurt housing?
Mortgage rates now average 4.2%. That’s still very low, even compared to the height of the real estate bubble. However, that raises monthly payments, putting some homes more out of the reach of buyers. Here’s why:
Assume a family wants to buy a home for $300,000, which is close to national average. Suppose they put a down payment of 16% of the home price (in this case, $48,000), a rate also around the national average. That means this family needs to get a mortgage of $252,000. When interest rates were 3.3%, they had to pay $1,103.65 per month if they got a 30-year mortgage. Now, they have to pay $1,261.92. That’s $158.27 more. Doesn’t sound like a lot, but it’s 14% more in monthly payments.
What’s more, if this mortgage is insured by the Federal Housing Administration, it requires the mortgage to be at most around 30% of the family’s gross income. So, when interest rates were at 3.3%, a family making about $44,000 each year could afford a home in our example. Now, with interest rates about 1% higher, they need to make more than $50,000. Odds are, most families have not seen their incomes grow by that amount.