Rising interest rates occur because of inflation. When more money is demanded to be paid, it keeps people from borrowing money.
Interest rates and housing prices are on the rise more than ever since the pandemic started, according to N.Y. Times, mortgage rates have risen by more than one percent since the beginning of the year. At the beginning of the pandemic, payments remained stable despite rising home prices because of historically low-interest rates. But, then, once interest rates abruptly soared, so did payments.
Mortgage loans come in fixed and adjustable rates with some flexibility of a hybrid of both in some cases. Keeping up to date with the rise in interest rates will help you determine the housing market’s impact and make more sound decisions.
Interest rates are the amount added to the principal borrowed. Banks determine this by several different factors. First, interest rates rise when inflation is high. This discourages people from borrowing money to slow down consumer demand.
These interest rates are fixed for the life of the loan. Though the combined principal and interest paid per month can vary, the total will remain the same. Because of the simplicity, this makes it ideal for homeowners.
The benefit of a fixed-rate loan is that the borrower does not slip into the potential threat of a sudden drastic increase in monthly mortgage payment if the interest rates rise. In addition, fixed-rate mortgages don’t vary much amongst lenders.
One downside is that it is more difficult to qualify for a loan when interest rates are high as payments are less affordable.
The initial interest rate on an ARM is set below the market rate on a comparable fixed-rate loan. ARMs start with a fixed-rate loan for some time, then eventually change. As time continues, the rate can rise or potentially lower. As a result, ARMs are usually more complicated.
The benefit of an ARM is that it may be a lot cheaper than a fixed-rate mortgage for the first 3-7 years or so. They initially have low payments and can allow the borrower to qualify for bigger loans.
One downside is that your monthly payment is bound to vary frequently over the life of your loan.
If you’re searching Southwest Florida real estate or the Cape Coral Real Estate market, look into the most recent housing market forecast. Though interest rates were supposed to slow down, increasing housing prices, it seems that interest rates and housing prices are growing significantly, making housing more expensive. Consider this forecast as you make your next move.
We can help you navigate your way through these rising interest rates and get you the home of your dreams! As a trusted Coldwell Banker Realtor, we care about our clients and work overtime to ensure they find precisely what they want.