Mortgage rates are on the rise this year, but they’re still low compared to the historic average. Anytime there’s a change in the mortgage rate, however, it affects what your clients can afford to borrow when buying a home. As Sam Khater, Chief Economist at Freddie Mac, shares:
“Since January, mortgage rates have increased half a percentage point from historic lows and home prices have risen, leaving potential homebuyers with less purchasing power.”
While clients will have an initial reaction to these increases, it’s important to advise them to create a monthly budget so they can plan for and understand what is affordable. Once this budget is created, sticking to it is important, and even a small increase in mortgage rates can make a big difference.
According to the National Association of Realtors (NAR), today, the median existing-home price is $313,000. Using $300,000 as a simple number close to the median price, here’s an example of how a change in mortgage rate impacts your monthly principal and interest payments on a home.
The above table can be a helpful illustration for your clients. For example, have them imagine they want to keep their monthly principal and interest below $1,250 per month (not taking PMI, HOA, etc. into consideration). Then show them how, given the rising interest rate and its potential trajectory, they will need to adjust their loan amount to main that $1,250 threshold.
Today’s mortgage rates are still very low, but experts project they’ll continue to rise modestly this year. As a result, every moment counts for homebuyers who want to secure the lowest mortgage rate they can in order to be able to afford the home of their dreams.
The currently favorable mortgage rate may not last for much longer. Remind your clients to leverage affordability while their purchasing power is still holding strong.