If you follow the news at all, you’ve already heard it. Last week the Fed decided to keep interest rates unchanged after their two day September session. The rates on 30 year fixed rate mortgages remain just under 4%.
“This is great news for now for renters, home shoppers and those who want to refinance a mortgage,” commented Gerard DiRuggiero. “The rate stability buys you some time while the Fed watches the world economy and other issues of concern. But, it does not buy you that much time, and this current decision to keep rates unchanged may bite you in the near future. There’s already concern and warnings from experts and the press on the flip side of this story.”
When the rate changes do come from the Fed, economists and experts warn that the increases in rates may be aggressive. “As a first time home buyer, you do not want to be caught by interest rates when the Fed plays catch-up,” said DiRuggiero. The reason why?
Half point and one percentage point increases in rates will drastically reduce your purchasing power. Monthly payments for mortgages go up quickly as rates rise. Here’s a quick case study we did while watching rates a few weeks ago that shows the situation:
- At 3.75% rates, a buyer borrowing $200,000 on a 30 year fixed rate mortgage would pay just $926/month mortgage payment (on principal and interest only).
- At a 4.75% rate, the same buyer can only borrow $177,500 in order to keep their monthly budget at the mentioned $926/month. Ouch.
You lose 12% of your buying power due the rate change. Where are rates today? As of 9/16, the 30 year fixed mortgage rate is 3.91%. The 3.75% rate used in the case study? Already gone.
We should all take heed of experts’ warnings. When rates do go up, they will be in much larger increments then we’ve been seeing week to week all Summer. “Time is on your side for now, but time will not be in your favor when things begin to change,” said Gerard. Interest rates last week (9/18) for the 30 year fixed rate mortgage were at 3.91%.
Time can move very quickly in the DC/MD/VA area. The lifestyle here goes at a very fast pace, and before you know it weeks and even months can fly by at the blink of an eye. “We see it in our Buyer Workshops often – busy professionals and high energy young families come through, and a lot of them have been renting or in alternative living arrangements for a very long time. A large portion of them are able to buy homes or condos right away; a lot of them simply ‘have not gotten around to it’ or have been busy, busy, busy.”
Payments stay low for the time being on this 3BR Deanwood Row Home listed for $234,900:
UrbanLand Company Buyer Workshops are available twice a week and are free of charge. Tuesday evenings at 5:30pm we run our fast format After-Work Edition, and on Saturday mornings we start at 10am. The Workshops always cover area $0 Down Programs in DC, Maryland, Baltimore and Northern Virginia, as well as current strategies relevant to buyers looking at all price ranges. Discussions on interest rates and other variables are always up for discussion! Strategic points include how to actually win at offers on homes and condos while using financing assistance programs.
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Here’s what other home buyers are successfully buying in our Workshops with our agents’ help and guidance!