We have mentioned the prospect of rates increasing sharply next year both because of inflation fears and because the Fed is supposed to end its massive efforts to keep rates low by buying up mortgage backed securities.
If rates do increase, payments will obviously increase too. Here is an analysis we frequently provide for “fence sitters” who hold off on bids because they think values may fall further. A $300,000 loan at 4.5% has a payment of $1,520 per month, while a $285,000 loan at 6.5% has a payment of $1,801 per month.
Our point: Even if values do drop another 5%, if rates go up by 2%, the loan payments for the cheaper house (in the above scenario) will be over $3,300 HIGHER per year. That is more than $100,000 over the life of the loan. That is a lot to pay to save $15,000.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167