Interest Rates Steadily Climbing

(Interest rates bottomed out in late 2012)

Since Ben Bernanke hinted in early June that the fed will look to begin cutting back on QE, interest rates have slowly yet steadily been climbing. Now what does this mean for us average Joes? This could mean one of two things. First, this could mean that buyers are going to begin backing off due to record low interest rates slowly going away. But, more likely what we'll see is that buyers will come out in troves to take advantage of these rates while they're still near all-time lows.

Here's a hypothetical example to think about for a second. Say you were to buy a $500,000 home, you put down the typical 20%, so you're putting down $100,000 in turn leaving yourself with a $400,000 mortgage. Still with me?

Now, according to the BankRate.com mortgage calculator, if interest rates were to go up just 1% from where they are today (which some economists are predicting) that is a difference in about $85,000 over the course of that loan or about $230 more in monthly mortgage payments and that's where you are REALLY feeling it, right? Because that's the money that's coming out of your pocket every single month. Just a little side note here but my sister's 2012 Honda Civic has monthly payments of $199, so we're talking the difference of more than an entire car payment here.

Moral of the story is if you're hesitating to sell your home because you want to see it appreciate a little bit more before selling, you're making a bad choice. Because although your home is appreciating in value, your replacement is as well so that all evens out. But you HAVE TO take into account the effect that mortgage interest rates rising are going to have. Essentially the longer you wait to sell it's only going to cost you more money in the long run, look to my example above for proof.

Next time, we'll talk about the affordability of houses changing with interest rates going up. Buyer's you're going to want to see this one.