Tampa Palms, Westchase, Carrollwood and Tampa Bay Real Estate News From Jeanne Prigitano

The average rate on a 30 year mortgage hit 5.05% last week, up from 4.81 the week before and the 40 year low of 4.17% in November. Although that may not seem significant, many industry experts feel that the days of 4% mortgage interest rates are behind us and rates will continue to increase, especially in the short term.

This is significant because it does have an impact on buying power. If you want to keep your monthly payments at a certain level, either the prices will need to go down or you must buy a less expensive house. Let’s use a $250,000 loan as an example. At a 5% interest rate, the monthly payment is $1342.05. At 6%, the monthly payment increases to $1498 a month. In order to pay the same $1342 a month, the loan amount would need to decrease to $225,000. Either you would need a bigger down payment to keep your monthly payments the same or you would need to spend $25,000 less for a house. For every 1% increase in rates, you can afford approximately 10% less house. That’s a 10% decrease in purchasing power. Most analysts believe that a 1% increase in rates is more likely than a 10% decrease in prices.

Yes, I know you still believe that housing prices are dropping. Prices may drop but it seems that it won’t be as significant to your buying power as much as an increase in interest rates. So, why chance it. Even if prices drop but mortgage rates increase, your monthly payments will stay the same. Now may really be the best time to buy.

If you want to play around with the numbers, go to my website www.TampaHouseHunter.com and click on Mortgage Calculators on the left.