The Federal Reserve announced Wednesday that they would cut back their
bond-buying program by $10 billion a month now that the economy is improving.
That announcement is considered to be a moderate start to the anticipated
taper.
The good news is interest rates did not rise dramatically on the news as
some had predicted. Still, experts agree
that the tapering of stimulus will affect you if you plan to finance a big
ticket item in the coming months. Analysts say now is the time to prepare.
As interest rates begin their slow ascent over the next year, plan to pay
more to finance homes, college loans, automobiles and appliances.
The current average 30 year mortgage rate is still under 4.5% but could rise to 5.5% next
year. This could drastically affect your home purchasing power and prevent you
from buying a home in the price range you desire.
Home affordability is not about the sticker price on the home, it is how
much mortgage can you afford to carry each month and that’s dependant on mortgage
rates, taxes and insurance. If any of these items rise, so will your costs
reducing your affordability.
A 1% increase in mortgage rates can reduce your purchasing power by 10%. For
example: Let’s say a home buyer could only afford to play $3500 per month on
his mortgage. With interest rates at 5%, he would qualify for a $446,000 base
loan but if the mortgage rate jumped to 6%, he would only qualify for a
$399,000 home. See the difference? YIKES!
Rising mortgage rates could also affect sellers. As mortgage rates rise,
sellers may have to drop their asking price to woo buyers who have less
purchasing power onto their door steps.
The bottom line is today’s interest rates may be the lowest we will ever
see from here on out in our lifetime. If you are planning on financing a big
purchase or put your home on the market, sooner is definitely better than
later. I would be more than happy to help you in your real estate transactions.
Feel free to call me regarding real estate matters at 503-318-1918.
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