Though the low rates at the beginning of 2022 fueled home sales, rates have been increasing recently, erasing rates seen from the start of the pandemic. Recent moves by the Federal Reserve raised interest rates 0.75 percentage points just a couple days ago- the highest rate increase since 1994. Higher rates means that homebuyers will, for a time, be dealing with steeper monthly payments.
Right now, an average interest rate for a standard 30-year fixed mortgage is 5.94%; an rise of 36 basis points from the beginning of the month. (A basis point is equivalent to 0.01%.) Check with at least 2 different lenders to see how their rates will help you keep your monthly payments down.
Though the Fed can’t directly set mortgage rates, the policy moves do affect your final home loan rates. Federal Bank suggests it will continue to raise rates during the year, so if you’re looking to buy a house in 2022, expect mortgage rates to continue to rise.
What Does This Look Like Against A Home Purchase?
Here’s an example of a loan earlier this year and last year with a mortgage rate of 3.5% and a house sale price of $400,000. This assumes 5% down, and Texas closing costs based on 2.54% property tax.
The same loan numbers, except with the a mortgage rate of 5.5% and a house sale price of $400,000. This shows a base increase of close to $500 to your mortgage.
In DFW at least, home prices are stabilizing, but don’t expect them to fall dramatically, and they may continue to edge up. Rent is already very high, so even at 6%, you will be better off with a mortgage, as you do have mortgage interest tax deductions, and an appreciating asset-your home.
If you think you will live in your new home for the next 5-7 years, you should consider investing in a primary residence.