Getting ready to buy a home? Learn more about how increases in mortgage rates can impact your payments, as well as other things to consider when house hunting.
Buying a home is often the most expensive purchase you’re ever going to make. If you’ve been thinking about buying, or you’re already in the process, the recent climb in mortgage rates might have you feeling like you need to speed things up.
Fast-selling homes and high prices across the U.S. housing market could also be adding to your sense of urgency.
The median-valued home sold in 2017 was on the market for just 81 days, nine days less than 2016, according to an April 2018 report from Zillow. Those figures include closing, which can take four to six weeks, bringing the time the typical home was on the market before going under contract to only around 30 days.
On top of that, home prices in many major markets have recovered well past their 2007 pre-recession peak. U.S. house prices were up 7.3% from January 2017 to January 2018 alone, according to the Federal Housing Finance Agency.
Regardless of the state of the U.S. housing market, you should take a calculated approach with important financial decisions like buying a home. Mortgage rates are a key consideration, but they’re just one part of the overall picture.
First, let’s take a look at current mortgage rates and how changes can impact mortgage payments. Then, we’ll look at other factors to keep in mind during your housing hunt.
It’s true that mortgage rates have been going up overall in recent years as the Fed hikes its benchmark Federal Funds Rate, which influences overall interest rates for everything from mortgages to credit cards. However, it’s never a straight path and mortgage rates are prone to fluctuation (see chart below.)
30-YEAR FIXED RATE MORTGAGE AVERAGE.
This chart from the Economic Data tab on the thinkorswim® platform by TD Ameritrade shows the average interest rate on a 30-year fixed rate mortgage in the U.S. since 2009. Data Source: Federal Reserve's FRED database. FRED® is a registered trademark of the Federal Reserve Bank of St. Louis. The Federal Reserve Bank of St. Louis does not sponsor or endorse and is not affiliated with TD Ameritrade. For illustrative purposes only.
As of May 3, these were the average interest rates for common mortgage loans in the U.S. according to Freddie Mac’s Primary Mortgage Market Survey:
Keep in mind these are just averages and the rate you might get can vary depending on factors like your credit score, the size of your down payment, your debt-to-income ratio, whether or not you decide to buy points or accept lender credits, and other factors.
Below is a chart showing how different mortgage rates can impact your monthly payments and the total cost over the course of the loan. For the case of simplicity, we’ll focus on the most common type of mortgage, a 30-year fixed rate.
HOW HIGHER INTEREST RATES IMPACT MORTGAGES.
The chart above shows the cost of a $200,000 30-year fixed rate mortgage at various interest rates. This example doesn’t include the cost of property taxes, property insurance and other costs/fees that should also be taken into account when considering a home purchase. For illustrative purposes only.
While mortgage rates are one of the obvious things to consider when it comes to buying a home, there’s a lot more to the financial picture. Here are some other questions to think through:
Whether you’re saving up for buying a house or retirement, setting financial goals and building a plan to help you get there can seem like a daunting task. Learn more about setting financial goals and how TD Ameritrade can help.
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