Big changes in interest rates and the housing market are driving homebuyers and homeowners to ask these questions.
The housing market is a serious issue right now. Home prices have been steadily increasing since the end of 2020, edging many homebuyers out of the market. The Federal Reserve recently raised interest rates in an attempt to quell inflation. At least preliminarily, these rate hikes seem to be cooling the market. However, at the same time, they’re increasing the mortgage costs of buying or refinancing a home. So, should homebuyers and homeowners rush to buy a home or refinance an existing one before the next hike?
Should You Rush to Buy or Refi? Assessing the cost of waiting vs the cost of acting now. Getting ahead of the hikes • 7 rate hikes are planned for 2022 • 2 have already happened • Expect more hikes in 2023 The Cost of Higher Interest Rates Currently, the average home costs $507,800 At 3% APR… • Monthly payment = $3,042 • Total interest cost = $262,925 At 5% APR… • Monthly payment = $3,629 • Total interest cost = $474,001 At 7% APR… • Monthly payment = $4,278 • Total interest cost = $707,937 The Upfront Cost of Buying the Average Home Now For a conventional loan with 20% down… Purchase price: $507,800 Loan amount: $406,240 • Down payment: $101,560 • Closing costs: $9,311 • Pre-paid taxes/insurance: $7,895 • Total cash needed: $118,767 For an FHA loan with 10% down (FICO 500-579)… Purchase price: $507,800 Mortgage amount: $457,020 • Down payment: $50,780 • Closing costs: $10,098 • Pre-paid taxes/insurance: $7,895 • Total cash needed: $68,774 For an FHA loan with 3.5% down (FICO 580+)… Purchase price: $507,800 Mortgage amount: $490,027 • Down payment: $17,773 • Closing costs: $10,610 • Pre-paid taxes/insurance: $7,895 • Total cash needed: $36,279 Is it the right time to rush ahead? For homebuyers 1. Locking in a lower rate makes sense if you can afford upfront costs 2. There are assistance programs that can help 3. Talk to a HUD-certified counselor to find them For homeowners 1. Remember you usually pay closing costs to refinance 2. Cost savings need to justify closing costs 3. Good credit is increasing essential 4. Talk to a counselor to assess cost/savings
Speak with a HUD-Certified housing counselor to explore your options.