Isn’t that the million dollar question! And experts are all over the place on this one. I’ve seen estimates ranging from 5.0 to 7.0 percent by the end of the year. Julie Brizee of Citywide Home Loans said, “I think it’s safe to say rates will be higher, let’s just go with the assumption they’re at 6.00 percent on the 30 year fixed by year end.”
So the question is, what does that do for our buying power as gay, lesbian,, bisexual and transgender people? Great question. I’m glad you asked it.
I’ve borrowed this sliding interest rate chart here to show you exactly what happens to your buying power as rates increase. I’ve highlighted what happens to one’s buying power as interest rates slide from 5.00 percent (today’s rate) to 6.00 percent (at year end). This chart shows the principle and interest payment for a $400k loan amount at 5.00 percent equals $2148 per month. Follow the slide and notice as rates go up to 6.00 percent your buying power decreases. At 6.00 percent you would need to drop your loan amount to $360K in order to keep your payments at $2,158 per month.
So what’s the take away? Well, besides the fact that low interest is good and high interest is bad, this chart tells us that for every one percent rise in interest rates, our buying power decreases by 10 percent. When rates increase from five to six percent, you have to drop your loan amount from $400k to $360k ($40k or 10 percent of the purchase price) in order to keep payments in a similar range.
Steve Simmons of Citywide Home Loans explains: “As a buyer that means, if property prices stay the same this year, you will actually be paying 10 percent more for your property because interest rates are rising.”
Now, if you are paying cash, you’re obviously not paying 10 percent more, but if you are financing your next home you are basically paying 10 percent more for that property due to the increased interest rate and borrowing costs.