Does an Increase in Interest Rates Affect a Buyer’s Mortgage Payment?
Happy New Year 2016.
I've been asked about the meaning of last months Federal Reserve’s decision to raise interest rates by a quarter of a point. So I thought you might appreciate a dose of reality about what this means for real estate from an expert, Mark Maimon at Sterling National Bank. I'm happy to announce that Mark will be a contributing author to this blog providing content to help buyers and sellers in NYC make informed real estate decisions.
I've been asked about the meaning of last months Federal Reserve’s decision to raise interest rates by a quarter of a point. So I thought you might appreciate a dose of reality about what this means for real estate from an expert, Mark Maimon at Sterling National Bank. I'm happy to announce that Mark will be a contributing author to this blog providing content to help buyers and sellers in NYC make informed real estate decisions.
How much does an increase in interest rates
affect a buyer’s mortgage payment?
By Mark Maimon Vice President, Sterling National Bank
The
real estate industry is bracing itself for an increase in mortgage rates and
everyone is wondering how it may affect buyers’ desire to purchase. What most people don’t understand is how much
a change in rates affects an applicant’s mortgage payment.
As you can see
below, the difference in monthly payment is not as significant as one would
typically think and that’s why we don’t anticipate that a rate increase of even
1% will have a significant impact on demand for property in general. Here
are a few scenarios to illustrate our point:
On
a $500,000 loan, every half percent jump in rate costs $142 more per month
On
a $1 million loan, every half percent jump in rates costs $284 more per month
On
a $2.5 million loan, every half percent jump in rates costs $709 more per month
If
a buyer decides not to buy because of a relatively small difference in the
monthly payment as outlined above, then they are probably over-extending
themselves financially in that price range anyway. That’s why we don’t
think that even a 0.5% to 1% difference in interest rates is going to have a
major sustained impact on the demand for property in the long-run (although we
may see some initial hesitation as buyers become used to a “new normal” with
rates).
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