What do Increasing Interest Rates Mean to Homebuyers and Homeowners

By now you have heard that the Federal Reserve  has increased short term interest rates by 0.25%.  This is the first rate hike since 2006.  It is also predicted that there will be more small interest rate hikes to come.  What does this mean to you as a homebuyer or homeowner?  How will it affect your ability to get a mortgage or to refinance?

Homebuyers

As interest rates rise, it will be more difficult for homebuyers to qualify for a mortgage.  This is because lenders look at an applicant’s debt- to-income ratio, the percentage of an applicant’s monthly income that goes to paying debt. As the monthly payment goes up because of higher interest rates, the amount the borrower can borrow for a mortgage goes down. For example:

At 4% interest, a fixed rate 30 year $350,000 mortgage will require a monthly principal and interest payment of $1671.  At 5.5% interest, a fixed rate 30 year $350,000 mortgage will require a monthly principal and interest payment of $1987.  That is a difference of over $300 a month and might disqualify a borrower from qualifying for the loan.  Another way to look at this: if the lender calculated a borrower would be able to pay $1675 a month for principal and interest, at 4% the borrower could borrow $350,000, at 5.5% the borrower could only borrow $295,000.  The borrower would need a larger down payment for the same house or look for a less expensive home.   

These are just examples of what higher interest rates might mean to you.  You can calculate using your own numbers using the Zillow Mortgage Calculator.

Current Homeowners

Fixed Rate Mortgages

If you are holding a fixed rate mortgage, your rate will not change.  This rate was locked in when you closed on your home and will stay the same for the life of your mortgage.  If you decide to refinance or buy a new home though  you will probably see a higher interest rate.

Adjustable Rate Mortgages

If you have an adjustable rate mortgage (ARM) you need to ask yourself how long you plan on staying in your current home.  If you are thinking about staying for more than a few years, you might want to  look into refinancing  your ARM into a fixed rate mortgage.  Start shopping around now to find the best mortgage for you .  Keep in mind not only the interest rate but also fees and other costs associated with the new mortgage.

Home Equity Line of Credit

Adjustable rate home equity line of credit (HELOC) borrowers will be among the first to feel the interest rate increases as these loans typically adjust interest rates monthly.  If you are using this type of credit, you might want to speak to your lender about converting your HELOC into a fixed rate home equity loan.  You also might be able to include your HELOC balance if you are refinancing your primary mortgage.

 

To give you an idea of what refinancing would mean to you, look at the Zillow Refinance Calculator. This calculator will  help you  estimate the amount of money a refinancing could save you by comparing the details of your current home loan with new rates, terms, and other factors.

 

Taking the time now  to see how your housing costs will change as interest rates rise could save you a great deal in the short and long term.  It seems as though interest rates  are heading up, so now might be the best time to start your new home  search.  Do you have any questions about buying or selling a home?  Do you  want to know more about the communities of West Essex?  Fill in the form below or email me @ kim.fiore@century21.com and I will get right back to you.

 

 

 

Selling your Home over the Holidays

The winter holidays are here and  you might be wondering if it is worth the trouble to put your house on the market or to keep your house on the market during this busy time of year. There are both pros and cons to selling now and here are a  few to think about.

Let’s start with the pros:

  1. Buyers who are looking now are serious buyers.  Most people are very busy this month and you will not have as many people just looking.  You will have fewer showings which  means fewer disruptions for you.
  2. There is less inventory on the market.  Buyers will have fewer homes to choose from which means your home will have more of a spotlight.
  3. Your home decked out with a few tasteful  holiday decorations is  looking it’s best.  As you are decorating, keep in mind the goal is to help buyers envision their families living there. Remember please to  store everything as soon as the holidays are over!  

Now on to the cons:

  1. It’s difficult  during the holidays to have your home always ready for a home showing.
  2. One of the first things you were told to do when you decided to put your house on the market was  to minimize clutter so a buyer could see themselves living there.  Your holiday decorations, including all of those crafts your children made long ago, have a great sentimental meaning to you but buyers might see them as clutter and not be able to focus on your great house. How do you feel about not displaying all your holiday items?
  3. Buyers might think you are desperate to sell your home which might bring some very low offers.
  4. The holidays are a time to relax and spend time with family and friends.  Do you really want to worry about  showing your house?

I hope I have given you some ideas to think about  before you  put your house on the market  at this time of year.  Remember the decision to sell is entirely up to you.  If you would like to discuss your home selling or buying needs please email me at kim.fiore@century21.com or give me a call.  I would be happy to help.

Happy Holidays!