How Interest Rates Impact Buyers

As you’ve all heard by now, interest rates have increased and will continue to rise throughout 2022. Today we want to talk about how these changes will affect you.

The basic rule is that for every 1% increase in interest rates, your buying power goes down 10%. Let’s say you could buy a $500,000 home with a 4% rate. If you looked for a house today with our 5% rate, you could only buy one that cost $450,000. The monthly payments would be exactly the same in those two instances.

As interest rates rise, your monthly payments will increase. How much they’ll increase depends on how much money you planned to put down, but it will be substantial no matter what. If you were originally looking for a four-bedroom home on a corner lot, when rates increase, you might only be able to buy a three-bedroom home or one that’s not on a corner lot. Keep in mind that a 5% interest rate is still a great rate by historical standards. In the early 1990s, rates were 12% to 13%. In the 1980s, they were 18%. Money is still cheap, and there are lots of options out there.

“As interest rates rise, your monthly payment will increase.”

Even though interest rates have gone up, we still expect home prices to rise. They just might not climb as fast as they did last year. If you have any questions, feel free to call or email us. We would love to hear from you.