My friend Brett Thomas from @Revolutionmortgage always keeps me up to date on mortgage rates. The Wall Street Journal reported yesterday that rates were the highest they have been since Spring 2020 at 3.22%. (As I type it is up to 3.4%) This always puts buyers in a tailspin, should I buy…will it affect sales. What to do? I am here to tell you that 3.22% is still low. The rates have hovered right around 3% for a while and this little jump won’t make a big impact in your overall payment. When you borrow at a 3% interest rate you are spending $4.21 per $1,000 you are borrowing. This means if you borrow $350,000 your payment is $1,473.50. With this recent jump to 3.22%, you are paying $4.33 per $1,000 or and increase of $0.12 per $1,000. So on that same mortgage your payment would be $1,515.50 or $42 per month. If you pay just one extra mortgage payment per year, which will go directly to reducing your principal you will shorten your mortgage by almost 4 years and recoup that extra interest. As you can see the over all the monthly impact is not huge. This should also be noted when you are shopping rates. Sometimes a bank or brokerage will have a slightly lower rate, but higher closing costs…when you calculate the slight rate differences pay attention to your monthly payment and then how much you need to bring to closing. If cash is limited, you might opt for a slightly higher rate allowing you to bring a couple thousand less to closing.
Brett’s text on Sunday prompted me to look back to my mortgage rates of ol’ and try to put this “rate increase” in perspective. I bought my first house in November 1998. I was two years out of college and making a mere $24,145 per year. At the time I was working at Snowshoe Mountain in their new Development Real Estate office. Although I was not in the market to buy one of the new builds there were plenty of other options. I scraped together enough for a down payment and proudly was the first of my college friends to buy a home (although I was making the least amount of money of the group). My interest rate was 7%….YES 7%!!! When I see people complain about 3.22% I have to laugh. I then looked at my husbands first home purchase. His first mortgage was also at 6.99%…although that was in 2003 and if he had me to help him shop around he could have gotten a rate more like 5.83%.
My next mortgage was after my husband and I got married. in 2005 we bought a home at the end of the year with a mortgage rate of 5.87%, rates crept up a bit higher that year. The house I currently live in, we bought in 2007 with a 4.78% interest rate and like everyone and their brother we refinanced last year at just below 3%.
Don’t let the jump in interest rates affect your long term real estate goals. People will always need a place to live, life events will continue to occur. They only thing you know for sure is the current rate. Who knows what putting off a buy/sell will mean in 1-2 years. You may be paying a lot more for the home with a higher rate. So, base your decision on what makes the most sense right now and don’t get caught up in the slight incremental rate increases. They will likely have less than a $50 impact on your monthly cash flow.
Below is a table of history of interest rates. Hopefully this helps put this slight increase in perspective! Happy Monday, make it a great week!
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