How Current Mortgage Rates Affect Buyers and Sellers: Understanding Interest Rates Today

What Are The Current Mortgage Rates?

The current mortgage rates have risen dramatically this year alone. While rates are still very low in comparison to what they have been in the past, buyers and sellers may get cold feet as they see interest rates go up, up, up. Rates change frequently, so make sure you discuss locking your interest rate with your lender.

How Rising Interest Rates Affect Buyers

Rising interest rates directly affect the price of a home that a buyer can afford, because it affects your monthly payment, especially if you opt for an adjustable rate mortgage. If you have a higher interest rate on your loan, this means that you will be paying more interest and therefore, a higher price over the life of your mortgage.

Since a buyer’s mortgage payment will be higher as interest rates increase, that means that a lender will be able to qualify them for a lower price depending on their debt to income ratio. Interest rates do not affect your base payment, but they do affect your PITI, or overall mortgage payment.

A buyer can usually opt to buy down their interest rate with more money up front. When you buy down your interest rate, you will end up recouping this initial cost over the life of the mortgage. However, if a buyer is putting as much money into their down payment as they can, they might not have much left over to buy down their interest rate. Buyers must balance the money they put toward their down payment and interest rate to ensure the lowest monthly payment.

How Rising Interest Rates Affect Sellers

Since rising interest rates directly affect buyers because they will be paying more on their monthly payments, it means that overall, buyers can afford less. This in turn affects sellers because potential buyers cannot afford as much, so it drives the costs of homes down. 

Changing interest rates can affect property value drastically. If mortgage interest rates shoot up, a buyer who could once afford a $500,000 home can perhaps now only afford a $450,000 home or less. This might mean that buyers choose to wait out the market to purchase a home, which causes less demand, and therefore lower prices when selling your home.

Interest rates affect buyers, sellers, and property value. While interest rates are near historic lows, they have risen in the past couple of years, which means that buyers can afford less, in turn making sellers have to lower prices.