Understanding How Rising Mortgage Rates Impact New Homebuyers

by Carson BuckAugust 15, 2018

The Pros and Cons of Rising Mortgage Rates

In the fourth quarter of 2017, mortgage rates started climbing slowly. This happened much earlier than expected, but what has made the situation even more serious is that the rates have continued to climb well into 2018. Now, it’s appearing that this trend may last longer than most experts have predicted.

For a new homeowner, the last thing they want to hear is that interest rates are moving upward. For many, this means that their home search has taken on a new sense of urgency because they want to lock in as low a mortgage interest rate as possible.

To ensure you’re making the right decision, it is important to know more about how the rising rates can impact you as a new homebuyer. While it’s never good news that the rates are rising, there is the potential for a trade-off – read on to learn more.

rising mortgage rates

Disadvantages of Rising Mortgage Rates

The number one concern with climbing mortgage rates is that they affect one’s ability to afford the home they want. Simply put, you’re going to be paying more for your home because a larger amount of your monthly payment is going to go toward interest – at least over the first half of your mortgage duration.

When mortgage rates are low, the amount paid toward interest is lower. This means you would be able to buy a more expensive home because you would theoretically be able to afford a larger mortgage. In this regard, the difference between buying the same home at the same price when the rates are low can save you thousands of dollars per year, when compared to buying it when the rates are higher.

Homebuyers impacted by the higher rates are now able to afford less home than they would have if they would have purchased when the rates were lower.

rising mortgage rates

A Possible Advantage of Rising Rates

Rising rates should never be considered a good thing, right? That is mostly true, but it isn’t always true. In fact, history suggests that when mortgage rates climb, home prices tend to drop. Sellers know that their homes are going to be harder to sell with the rates being what they are, so they will often reduce their asking prices to attract more buyers.

But, while history suggests this can happen, it isn’t always the case. However, if the seller of the home you’re interested in refuses to drop the price, then you may still be able to work out a deal. You can always try to negotiate for certain contingencies, such as the seller paying your closing costs or making repairs to the home before you seal the deal.

Buyer interest drops off the higher the mortgage rates climb, and if the seller has a good agent, they should know this. Use it to your advantage and you may still be able to get the home you want at a price you can better afford, despite the higher interest rates.

rising mortgage rates

Find Your New Home – Try Homes.com Today

Buyers need to be more concerned with their housing budgets when rates climb. Having a way to filter out the homes that are outside of your budget not only helps you avoid overreaching, but it also saves you plenty of time looking at homes you just can’t afford.

At Homes.com, our free online search tool can be customized according to your unique search parameters. Try us out today and let us help you find the right home for your budget.

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About The Author
Carson Buck
Carson is a real estate agent based out of Phoenix, Arizona. Carson loves data and market research, and how readily available it is in today's world. He is passionate about interpreting these insights to help his clients find and buy their perfect home. Carson got into the real estate industry because he loves the feeling of handing over the keys to a new home to happy clients. In his free time, he works on his backyard bonsai garden and spends time with his wife, Julia.