Mortgage interest rates are primarily tied to the activity in the stock and bond markets, which are directly affected by the change in the Federal Reserve Boards interest rates. The Fed ususally raises rates due to the improvement of the national ecomomy to ward off inflation. When the Fed raises rates more money flows out of stocks and into bonds as the return rate becomes better. Conversely, when rates drop, more money typically flows back into stocks.
The reason I mention this is that its important to know that rates are tied to national events that have nothing to do with the condition of our local economy.
The point here is twofold:
- Before interest rates rise is the best time to be in the market.
- The buying power effect of interest rate changes can be dramatic. Take the following rule of thumb example into consideration:
If interest rates rise just 1/2 of a % and a buyer is looking for a $300,000 mortgage, the higher rate translates into a payment $130 higher per month. That may not seem like much but that can reduce the qualifying level of a buyer by over $19,000. So now, they may only be able to afford a $281,000 mortgage instead of $300,000. Or they will need to come up with $19,000 more downpayment. Some buyers may get priced out of the market. What if rates rise more? As a rule of thumb: $43 per month higher payment per $100,000 per 1/2% of rate rise!
As can be seen, the affect can be significant. Now ideally, buyers won't leverage to the max in the first place, but the psychological affect can take buyers out of the market to. Many look at their current mortgage and decide not to move because they can't justify paying a higher rate on a new home - even if they really want to move!
Enough said - rates are important, but that's out of our control. What is in your control is; when you list, for how much, with whom and how much that agent charges! The lower the commission you pay can offset the affects of interest rate changes (assuming your agent actually sells your home)! Contact Me for details. Use the calculator below to see the affects yourself. Feel free to change any field to see the results change.