Interest Rates on the Rise – How Much Does It Matter?

In mid-June, the Federal Reserve raised interest rates. However, the interest rates the Federal Reserve raised are not mortgage rates – they are the interest rates that banks charge each other to borrow money. This cost is eventually passed on to consumers (mortgage rates are one of those ways) and that is why you should pay attention to what the Federal Reserve is doing.

At this last meeting, the rate was raised for the 7th time since 2015. The goal of the Federal Reserve increasing and decreasing the Central Bank’s interest rate is to encourage economic growth or dampen it (to decrease inflation).

Mortgage rates were already rising before this latest adjustment hit, up to 4.53% (as of 7/12/18) from 3.95% at the beginning of 2018 (according to FreddieMac.com). Experts indicate they could reach between 4.75 – 5.0% by the end of 2018.

What does this mean for people buying, ready to refinance, or who want to pull out some equity? Below is a chart that illustrates a number of purchase amounts, assuming 20% down, a variety of interest rates, and the corresponding approximate monthly payment for a 30-year fixed rate mortgage:

Home Price 20% down 4.0% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 6.00%
$250,000 $50,000 $955 $984 $1,013 $1,043 $1,074 $1,104 $1,136 $1,167 $1,199
$300,000 $60,000 $1,146 $1,181 $1,216 $1,252 $1,288 $1,325 $1,363 $1,401 $1,439
$350,000 $70,000 $1,337 $1,377 $1,419 $1,461 $1,503 $1,546 $1,590 $1,634 $1,679
$400,000 $80,000 $1,528 $1,574 $1,621 $1,669 $1,718 $1,767 $1,817 $1,867 $1,919
$450,000 $90,000 $1,719 $1,771 $1,824 $1,878 $1,933 $1,988 $2,044 $2,101 $2,158
$500,000 $100,000 $1,910 $1,968 $2,027 $2,087 $2,147 $2,209 $2,271 $2,334 $2,398
$550,000 $110,000 $2,101 $2,165 $2,229 $2,295 $2,362 $2,430 $2,498 $2,568 $2,638
$600,000 $120,000 $2,292 $2,361 $2,432 $2,504 $2,577 $2,651 $2,725 $2,801 $2,878
$650,000 $130,000 $2,483 $2,558 $2,635 $2,713 $2,791 $2,871 $2,953 $3,035 $3,118
$700,000 $140,000 $2,674 $2,755 $2,837 $2,921 $3,006 $3,092 $3,180 $3,268 $3,357
$750,000 $150,000 $2,864 $2,952 $3,040 $3,130 $3,221 $3,313 $3,407 $3,501 $3,597
$800,000 $160,000 $3,055 $3,148 $3,243 $3,339 $3,436 $3,534 $3,634 $3,735 $3,837
$900,000 $180,000 $3,437 $3,542 $3,648 $3,756 $3,865 $3,976 $4,088 $4,202 $4,317
$1,000,000 $200,000 $3,819 $3,936 $4,053 $4,173 $4,295 $4,418 $4,542 $4,669 $4,796

Remember, it isn’t just about the increase in your monthly payment. That difference is paid over the life of the loan – 360 months. So if you buy a home for $400,000 with an $80,000 down payment, your payment would have been $1,528 at 4.0%, but it is $1,718 at 5.0%. That is a difference of $68,400 over the life of the loan.

 

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Sources: http://www.freddiemac.com/pmms/archive.html

https://www.cnbc.com/2018/07/13/fed-emphasizes-solid-us-economic-growth-repeats-gradual-approach.html