The Calm Truth about Rising Rates

Interest rates are rising.  House Hunters are watching those rates nervously, and they’re worried – quite sensibly – that rates will continue to rise.  But if you’ve been thinking about buying a home, all the recent news about rising interest rates and high home prices shouldn’t scare you off.  Just the opposite: Now is the time to buy, not wait.

Historically Low

Don’t panic!  Interest rates remain at historically low levels.  As of June 2013, the interest rate on a 30-year fixed-rate mortgage was 4.5%.  While that’s up significantly from 3.9% just a few weeks earlier, consider that interest rates were once much, much higher.  In fact, the average rate for a 30-year fixed in June, 1982 was a staggering 16.7%.  Despite having risen 0.6% in just three weeks, buying a house today is an incredible bargain in historic terms.  In fact, that 4.5% rate is still significantly lower than the rates we found just two or three years ago.  Buying now means you’re still getting the bargain of a lifetime – and who cares if that bargain is slightly worse than it would have been a few months ago.

Plus, rates are not going down again anytime soon.  If you wait, you’re just going to wind up spending more for your loan than if you go ahead now.

Small Changes

And how much difference does the rise in rates really make?  Not much: Seemingly big jumps in interest rates result in very tiny jumps in monthly payments.  A home loan of $100,000 at 3.9% is a $472 monthly payment.  At 4.5% it’s $505 – just a $35 increase.  That’s essentially one less movie a month.  One less movie!

Plus, you can always refinance down the road.  In June of 2008, the average interest rates were 6.32%; the people who purchased homes in 2008 and refinanced to 3.9% in 2013 will save a lot of money on the remaining term of their mortgage.  And the plus side of home ownership is a value that never diminishes.