Mortgage Rates And Impact On Buying A Naperville Home – July 2013

Mortgage rates have not been the friend of home buyers recently.

I have a story to illustrate that but, before I get to that, let me say one thing:

This article is not meant to scare people into buying a home.  Although it paints a less-than-rosy picture of the likely result of waiting to buy a house, the bottom line is that if you can’t or don’t want to buy now, then don’t, this article has been based around giving you some first time home buyer tips.

As a real estate agent specializing in Naperville, I’m here to help, not hype.

So, if you’re in the market to buy in the near future, this info is meant to help educate you so you can be a more informed consumer, not scare you into buying the first thing you see.  You should make a decision that best helps your personal situation and hopefully the following mortgage data (and my Naperville housing market reports) will help you.

With that said, one of my home buyers recently was deciding between a few homes they really liked.  To make a 4-month story short, they almost lost the one they loved the most because mortgage rates they qualified for had gone up 0.5% between when they first started looking and when they finally had their offer accepted.  The bottom line was that this put them over their projected monthly budget.

They were surprised and shocked that rates had gone up without them even knowing.

This story ended up having a happy ending, but it was a rough road for a week or two as they figured out what they could really afford.

So, What The Heck Happened?

Well, the problem was that they researched rates when they first started looking and weren’t aware that they had changed over just a few months.  They didn’t anticipate that they would change (or, obviously, change so much).

Where Are Rates Headed Now?

That’s the magic question that people ask every day.  Here were the projections from June 2013 where the Fannie Mae and 3 other prominent mortgage-related institutions projected that rates would be somewhere in the 4.6 to 4.8% range in a year from now. 

mortgage rate projections, 3rd quarter 2013

The problem here is that the rates they expected in another year arrived only weeks later!

Not even these experts saw such a spike coming.  You can see from the chart below that rates shot up recently without warning.

surprise mortgage rate spike july 2013

So how might this impact you?

Well, instead of projecting forward into a crystal ball and taking a guess as to what might happen, let’s take a look at what actually did happen.

Let’s say you were thinking of buying a $200,000 home last year (summer of 2012) but waited.  What’s the impact of having held off for the last 12 months?

Since then, prices have gone up about 10% (this % varies, but that’s the general consensus for most price indices) and rates have jumped about 1 point.  If the cost of that house is now $220,000 with a 4.5% interest rate, that’s a $200+ increase in the monthly mortgage payment.  Ouch.

mortgage rate spike impact on paymentsThat’s $2600/year more in expense.

Over a typical 30-year loan, that’s an extra $78,000!

cost of waiting on mortgage rates

Let me say again that my goal here is not to scare you. 

These are just the facts and you want to know what is going on right now.

What’s Next?

There are two statements said recently that are pretty interesting.

The first was from Doug Duncan, the Chief Economist at Fannie Mae. He said:

“I don’t think the Fed ultimately would be troubled with a 6.5 percent mortgage rate.”

6.5% mortgage rate quotation

Then Frank Nothaft, Freddie Mac’s Vice President and Chief Economist, said “As the economy continues to improve we expect to see continued upward movement in long term interest rates…At today’s house prices and income levels mortgage rates would have to be nearly seven percent before the U.S. median priced home would be unaffordable to a family making the median income in most parts of the country.”

7% mortgage rate quotation

So basically these two chief economists are both agreeing on the fact that it wouldn’t be too big of a deal for mortgage rates to go up to 6.5% or 7%.

Are they saying they will absolutely go up?  No.

Am I saying they are absolutely going to go up?  No.

But if these two head honchos are saying similar things within a week of each other, they must be getting their data and predictions from somewhere to say all this.  They certainly have inside info that you and I don’t have access to.

Mortgage Rate Summary

Like I said before, if you’re not sure you can or should buy a house in the near future, then don’t.

But if you’re able and ready to buy right now and just on the fence wondering whether or not you should, then consider the impact of waiting.  If rates go up, not even to mention rising home prices, the same house today may cost you more tomorrow.

Below is table of rates and home prices.  This will give you a visual understanding of how much your monthly payment will be by rates going up and down.

mortgage rate and payment tableIf you have any questions about how rates may affect your home buying power, you can contact us and we’ll help you out.

Contact John Reh, Naperville Realtor

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About John Reh

I moved to Naperville in 1981 and I love this city. As a Naperville-focused real estate agent, I publish this website to promote our community and help current and soon-to-be residents discover the best of Naperville homes and lifestyle. Contact me at any time.

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