How 5% mortgage rates would affect you

May 11, 2017

 

There's been a lot of chatter in 2017 about interest rates getting close to 5% by end of year, beginning of next year. (See: here and here.)

 

This is obviously important to home buyers because every rise in interest rates increases the cost of a home and thus decreases your buying power. But by how much?

 

Let's break this down a little.

 

The rule of thumb is that every 1% rise in mortgage rates equals an 11% increase in home price. If rates were to hit 5%, that would be roughly a 3/4% increase from today's rates, which equates to roughly an 8% increase in the cost of a home. 

 

What does this mean? For those looking to buy, this provides some hard numbers to chew on. Buy now or buy later? Unless you think home prices will drop by 8% in the next year (and every indicator is that prices will, in fact, increase), then your home buying power is going down.

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