Effects of increasing mortgage rates on home recovery

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By: Joy Mali
on 4th Sep,2013

Home owners should be aware that there is an increase in the interest rates of mortgages.
Effects of increasing mortgage rates on home recovery


Home owners should be aware that there is an increase in the interest rates of mortgages. As mentioned by Freddie Mac, the rate of a 30-year fixed mortgage rate is now at 3.91 percent which is actually 18 percent higher than the recorded all time low back in November, 2012, in which the rate was at 3.31 percent. In addition, the rate is also 17 percent higher than the recorded interest rate last May which was at 3.35 percent. For 15-year fixed rate interest rates, it rose from 3 percent to 3.03 percent. The increase of these percentages in terms of monthly payments for every $100,000 of debt estimates to about more or less $30 extra every month.


Many people have been investing in real estate and once again buying houses which has helped the housing recovery. But now that the mortgage rates are increasing, will this impede the recovery? When comparing the increased rate of 3.91 percent to the rates before, it is still comparably low. This is because of the program called the Third Round of Quantitative Easing or QE3,which was implemented by the Federal Reserve. The program aims to aid in the recovery of the housing and the economy by purchasing Treasury bonds and mortgage-backed securities worth $85 billion every month. The program has made huge differences, allowing mortgage rates to be offered at attractive rates. Due to this, many potential home buyers and home owners looking for ways to refinance their mortgages have been given access to cost-effective financing, which consequently have given real estate a boost in terms of home sales.


The reason that rates are increasing lately is due to a boost in the economy and due to speculation on what the Fed chairman, Ben Bernanke has suggested. He mentioned that program may slow down with the bond buying. As a result, many financial advisers as well as economists believe that the mortgage interest rates may continue to increase. Regardless of how much the increase would be though, they believe that of course, some markets will be more affected compared to others. As Lawrence Yun expressed, California, New York, Washington D.C., metro areas, east coast hubs and other coastal regions may be the areas where people may feel the first impact. The cities mentioned earlier, are the ones he believes would first experience a decline in sales. One issue with the increase in mortgage rates is that if they continue to increase and income levels aren’t able to keep up, then sales activity will surely be impeded, especially in some areas. The reason more people are able to buy houses now is because of the low monthly mortgage interest rates. When the rates increase to a certain level which means increased spending of their income, then home buyers may choose to wait it out until they can afford larger payments, until their income levels catch up with the current rates, or until the real estate interest rates are lowered.


On the other hand, there are some economists who look at the increases as a positive thing even if it could result to a slight decrease in sales. Many people are joining bidding wars for homes that they wish to purchase. These bidding wars have resulted to larger gains despite the increases.


The effect of mortgage rates on home recovery may not have made that big an impact regarding sales activity, as the current mortgage interest rates are still considerably low. However, if you are considering a home, it would be best to perform a credit check, verify your credit score and your current debt levels so you can determine how much you can afford to borrow for a home loan. In this way you can take advantage of the current low interest rates, as economists expect the rates to continually increase.

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