Interest rates remain at historically low levels, pushing the long anticipated rate hike into the future.
U.S. interest rates have seen nearly a decade of record lows, and 2015 was supposedly the year that they finally began to rise. The Federal Open Market Committee announced today that the benchmark interest rate for short-term lending will remain at its current target level of 0 percent to 0.25 percent.
Although rates didn’t climb today, an eventual increase will occur in the next couple of months.
“The federal funds rate, and in turn mortgage rates, remain low and will likely end the year roughly where they started it. For most markets and buyers around the country, the effects of any eventual interest rate hikes should be pretty small in the near term, but in some unaffordable markets where buyers are already stretching their finances, higher interest payments could more dramatically limit buyers’ options,” said Zillow Chief Economist Svenja Gudell.
Unaffordable markets include places like San Francisco and New York City, where housing is already very expensive. Buyers in these markets have little wiggle room when it comes to housing they can afford, and higher interest rates will limit their options even more.
On the flip side, higher rates will have little impact on markets such as Cleveland, where home values aren’t nearly as high.
To give you an idea of how a potential rate increase would impact home buyers, we took the current rate on Zillow Mortgages of 3.81 percent and did some calculations, using Zillow’s Mortgage Calculator, on homes valued at $150,000, $250,000 and $350,000. The goal was to see how monthly mortgage payments would be affected if the rate rose to 4 percent and 5 percent, assuming a 20-percent down payment.
Monthly Mortgage Payment
As shown above, the higher the purchase price, the greater impact a rate increase will have on your monthly mortgage payment.
When this anticipated rate hike does occur, the majority of markets around the country will see little impact, which is great news for the housing market.
Posted by Jordyn Lee on Zillow