How Do Interest Rates Impact Selling or Buying a Home in SW Florida?
There has been recent talk of interest rates potentially rising. What do rising mortgage interest rates mean to real estate buyers and sellers? Let’s look at a sample $200,000 home in SW Florida. A full mortgage payment can include money for the principal and interest (P & I), taxes and insurance. For this analysis, let’s consider for simplicity just the principal and interest portion of the mortgage payment.
Interest rates have been falling for the past 20 years from 7-8% to about 6% 10 years ago and now most recently under 4%. Last summer an average rate was approximately 3.4% and has recently gone up to about 4.1% for a 30 year fixed rate loan. Let’s look at the effect of those recent rates.
Sample home $200,000 with conventional 20% down 30 year loan of $160,000.
- Interest rate 3.4% P&I $710 a month
- Interest rate 4.1% P&I $773 a month
- Interest rate 4.5% P&I $811 a month
These rates sure beat the $1174 per month that 8% rates cost in the past!
The basic P&I rate for a $200,000 home has gone up by just $60 a month since last summer. That extra payment likely would not stop a home purchase. On the other hand, if a home buyer could just afford the $710 per month, then they could now afford a $184,000 home instead of $200,000. One effect on the buyer is that there may be less homes to choose from or that the homes they can pick are possibly of lesser value.
For sellers, increasing rates, if they diminish the buying power of some buyers, can tend to affect the prices of homes. Our advice, as always, would be to have your Realtor closely watch the market for price trends and adjust your price accordingly to stay competitive.
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