(StatePoint) With heightened talk of rising interest rates, many prospective homebuyers are understandably concerned about whether itâ€™s the right time to purchase a home.
Indeed, you may be wondering if you waited too long and let the historically low interest rates pass you by or if you can still find a dream home that fits within your current budget.
Experts say that itâ€™s true that rates are at their highest in almost four years and that this year has been particularly rough, however, itâ€™s not all bad news. Rates are still well below the levels seen 10, 20 and 30 years ago.
â€œRates are still low by historical standards, helping make mortgage payments affordable for many, but your wallet might take a hit if rates continue to go up,â€ says Freddie Mac deputy chief economist, Len Kiefer.
How big will the hit be? Assume you buy a home with a 20 percent down payment, take out a $200,000 mortgage and are getting a 30-year fixed-rate mortgage. At a 4.5 percent interest rate, your monthly payment would be $811 with total interest paid over the life of the loan being $131,851. With a 7.5 percent interest rate, your monthly payment would be $1,119 with a total interest paid of $242,748. With an 18 percent interest rate, your monthly payment skyrockets to $2,411 with a total interest paid of $708,081.
If rates jump a half percentage, youâ€™ll pay a bit more each month, which isnâ€™t ideal, but the added expense will unlikely be a deal-breaker. However, if rates jump to the levels they were in 1981 (an average of 18 percent), you can expect to pay a whopping $1,600 more per month, which may cause you to think twice about taking the plunge into homeownership.
Donâ€™t let current rising interest rates prevent you from buying a home this year. Experts suggest that while rates have risen recently, historically speaking, it is still an overall great time to buy.
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