Lately, I’ve been hearing about how mortgage interest rates are going up and how the increased mortgage rates are going to affect affordable housing. For those who’ve been following my blog, you know that I believe in keeping things in perspective.
At the time this article is written, mortgage interest rates are under 6%, which is still considered to be at historic lows. I remember when I bought my first home in the early 2000s. My interest rate was just under 7% and that was considered great! When my parents bought their home, interest rates were anywhere from 10 %- 14 %!
How Do Interest Rates Affect The Amount I Can Afford For My Home?
Interest rates have a direct relationship with the amount of home you can afford to purchase. The higher the interest rate, the lower the purchase price of the home. The good news is that in a hot seller’s market, this will lessen the number of buyers competing for a new home. Also, the good news is that you can deduct a certain amount of mortgage interest on your taxes (talk to a CPA about the deduction amount).
Property taxes also play a huge part of the amount a buyer can afford to purchase a home. In high tax states such as Illinois, California, etc. high property taxes in addition to higher mortgage interest rates, can drastically change the amount a home buyer can afford. This will also be an issue for people trying to sell their homes. Home sellers will have a lesser amount of qualified buyers. In turn, this may cause sellers to drop their home prices and settle for a lower purchase price which will depreciate the home values in their area.
Increased mortgage rates will have a very little effect on the home buyer’s affordability in low property tax states such as Indiana, Colorado, etc.
What’s the solution?
Stay on top of your finances and your credit score. Pay off debts, increase your savings and make sure you have a strong credit score. You’d be surprised how much of a difference in the interest rate on your mortgage if you have a grade A credit score.
Written By: Shena Omotola, Dream Home Specialist & Broker Owner of Skyward Realty – Skyward Realty services Chicago, Suburbs, and Northwest Indiana
P.S. Feel free to email me any questions. I’m always here to help. Shena@SkywardRealty.com