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.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade does not provide tax
advice. We suggest you consult with a tax-planning professional with regard to
your personal circumstances.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2022 Charles Schwab & Co. Inc. All rights reserved.