Home Mortgage Interest Rates at 4%, 5%, and 6% - How it Impacts Our Monthly Payments

2022 has seen the greatest rise in home mortgage interest rates since the 1980’s – and it’s still Spring.
 
That perspective sounds scary, doesn’t it? Similarly, the perspective of the screams of people on a roller coaster sounds scary. But instead of fear, they are experiencing an immediate thrill, a sense of joy - a positive emotion.
 
Let us dissect the ‘fear’ of rising interest rates. And yes, I’m comparing interest rates to a roller coaster ride. Why? Because of the ups-and-downs that ALWAYS occur when we speak of real estate, buying and selling, interest rates, and investments.
 
First, here are some facts…

• INTEREST RATES have been on a general DECLINE for the past 40 years.
• HOME PRICES have been on a general RISE during that same time.
• RENTERS give their monthly financial investments to OTHERS.
• HOMEOWNERS give their monthly financial investments to THEMSELVES.

 
Many times, our actions are driven by our emotions. These actions can be fueled by the people around us – what they say and how they react. If our behaviors are emotionally driven, the outcomes are often difficult and dangerous. Here’s a scenario that illustrates the previous statement:

• People who reacted EMOTIONALLY about rising interest rates in February 2022, and waited to purchase a home, now are experiencing a higher interest rate AND have zero home equity.

 

• People who reacted PRACTICALLY despite rising interest rates in February 2022, and purchased a home, have now secured a lower interest rate AND gained home equity.

 
Home ownership is a longer-term investment. Average time people stay in their homes is 7-10 years. Remember the 2008 recession and home value drop – devastating right? Seemed like it at the time, however it ONLY took 3.5 years for home prices to recover. That’s all. They’ve continued to increase ever since.
 
Here is a quick list of terminology and then TWO scenarios on how the rise in interest rates PRACTICALLY impact us.
 
TERMINOLOGY

• Loan Amount: this is not the value of our home; it is how much money we are borrowing.
• Interest Rate: percentage we are being charged for the benefit of borrowing money.
• Term: the length of time we pay back our loan; these scenarios assume a 30-year fixed rate.
• P&I (Principal & Interest):
  • Principal is the money we originally agreed to pay back.
  • Interest is the cost of borrowing the principal.
• Monthly Payment: P&I we pay each month (does not include taxes and homeowners’ insurance)

 
SCENARIO A: using a $200,000 loan amount *
 
          4% Interest Rate
          $955 monthly payment (P&I)
 
          5% Interest Rate
          $1,074 monthly payment (P&I)
 
          6% Interest Rate
          $1,199 monthly payment (P&I)
 
SCENARIO B: using a $400,000 loan amount *
 
          4% Interest Rate
          $1,910 monthly payment (P&I)
 
          5% Interest Rate
          $2,147 monthly payment (P&I)
 
          6% Interest Rate
          $2,398 monthly payment (P&I)
 
Bottom line, homeownership has a LOT of benefits.
 
My advice:
Buy now and if interest rates rise, we’ve obtained a lower rate. If they fall, we refinance.

Additionally, if as a homeowner we have equity, we can pull out some cash and still keep our monthly payments low. More on that in a future article – or you can call me today to hear more about this option. 😊
 
* these are examples for educational purposes only; they are not listings of today’s interest rates.
 
Yours,
 
Blaise
 
Blaise Patrick Tracy
Mortgage Loan Officer | NMLS #2299123
 
mobile 310.200.9180 | office 303.585.4167
blaise.tracy@usbank.com | linkedin.com/in/blaisetracy
 
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