The Federal Reserve increased its benchmark lending rate by .025 in September, the third such increase so far in 2018. Analysts predict another possible rate hike in December. What does it mean for Columbus home buyers?
Most notably, mortgage interest rates are rising. As of September 27, the average interest rate on a new, 30-year fixed-rate mortgage was 4.72%. About a year ago, the average rate on this mortgage was 3.83%. While the difference is slightly less than 1%, it has an impact.
For example, a $300,000 mortgage at 3.83% would give you a principal and interest payment of $1,403 a month. If you made this monthly payment each year for the full 30-year loan term, you’d repay a total of $505,080. ($300,000 to principal, with total interest paid of $205,080.)
Borrowing $300,000 with a rate of 4.72% gives you a principal and interest payment of $1,560 a month. The higher interest rate costs you $157 more per month! Over the life of the mortgage, your total repayment would be $561,428, meaning you’d pay $56,348 more in interest.
On another front, higher mortgage rates mean that debt-to-income ratios can be harder to meet. During the mortgage underwriting process, your gross monthly income is compared to all of your monthly debt payments – student loans, credit cards, car payments, ect. This is known as “front-end” DTI. Next, the lender adds your projected mortgage payment into the mix, for the “back-end” DTI.
In the most generous underwriting criteria, your back-end DTI cannot exceed 50% of your gross monthly income. Naturally, the higher the mortgage interest rate, the higher your DTI will be.
But when interest rates are rising, a variety of consumer debts also see higher rates and higher monthly payments. If you are carrying any credit card balances, student loan debts or other loans with variable-rate interest, you’re likely to be paying more for them. When these monthly payments rise, it affects your DTI – not to mention your wallet!
If you’re unsure of the rate and terms on your current debts, now is the time to examine them and create strategies for paying them down. Reducing your variable-rate consumer debt will save you money, and put you in better shape for mortgage approval!
As your Exclusive Buyer’s Broker, we serve your best interests at all times! Unlike real estate agents and brokerages who represent sellers, as an Exclusive Buyer’s Broker, we only represent you, the buyer, getting you the best price and terms with no conflict of interest at all times.
Understanding this distinction could literally save you thousands of dollars not only on the purchase price and terms, but also on seller concessions and home inspection issues, whether you are a first-time homebuyer or an experienced homeowner!
Contact us with your home buying questions! Remember, we are with you every step of the way…all the way home!
Andrew Show
Broker, CEBA-M, CNE, CSP, PSA, e-PRO, CREM, ABRM, AHWD
Buyer’s Resource Realty Services, www.buyershome.com
Serving Metro Columbus, Ohio with Exclusive Buyer’s Agents
7100 North High Street, Suite 204, Worthington, Ohio 43085
614-888-4110 | 888-888-4110 Toll Free | 614-839-4110 Fax
