How Do Interest Rates Affect Affordability?
Higher interest rates mean that the cost of a mortgage, both in terms of its lifelong interest, and in its monthly payments, are going to increase.
If you’re looking to buy, this means that their money is not going to go as far as it would have during lower interest periods. As grim as this all sounds, remember that the interest rates we are experiencing today, while higher than they’ve been, allow us to have a market that is still better for buyers than it has been at other times in the past.
Sometimes people put off buying a home thinking that the market or interest rate will go down. This is a short-sighted move.
We encourage you to move forward with your real estate transactions regardless of the current market. For one thing, it’s possible that rates will rise rather than drop and that golden opportunity you were waiting for will pass you by.
Moreover, if rates improve, depending on the situation, refinancing could get the borrower a better rate later. For example, following the high mortgage interest rates in the 1980s (12 to 18 percent), there was a period of massive mortgage refinancing when those rates dropped below 8 percent in the 1990s.
- Source: Keller INK, May 2022