The Property Mom: Interest Rates and Buying a Home

If you take a look at the news on any given day, you are guaranteed to come across a headline about the recent rise in mortgage interest rates across the country. Understandably, this news can cause some concern if you are in the market to purchase a new home. As a real estate agent, I frequently get asked by buyers what this means for their home purchase plans. I advise my clients that a rise in interest rates should not deter them, and being knowledgeable about the topic will help them to better navigate the buying process.

Today’s interest rates are currently staying near 4%, however, many economists say interest rates will continue to trend upward this year, and an increase closer to 5% seems likely in the foreseeable future. You may be wondering if you will still be able to afford the home you have always dreamed about if interest rates continue to rise. Nancy DeNicola, a Loan Consultant with Loan Depot who specializes in the Hoboken real estate market, advises that “from a home buyer's perspective, as interest rates increase, affordability decreases. For every 1% interest rate increase, a buyer loses 9% purchasing power. For example, if you are looking to purchase a $300,000 home with a 4% interest rate, a 1% increase would mean you can now only afford a home priced at $281,000 or less.“

While those numbers and percentages may seem surprising, it is important to realize that from a historical standpoint, a 5% mortgage rate is still remarkably low. At the start of the “Great Recession” in 2006, the average mortgage rate was 6.41%. Ten years earlier in 1996, the average mortgage rate was 7.81%. And 10 years earlier than that in 1986, the average mortgage rate was 10.19%. So, the good news is that interest rates are still at levels that are historically low, which bodes well for potential homebuyers. More good news is that even if interest rates increase, it won't necessarily change your ability to qualify for a mortgage. Mortgage lenders take into consideration your credit score as well as your debt-to-income ratio. How interest rates are trending will likely have less of an impact than these other two factors, which could be deal breakers. Additionally, it is important to remember that interest rates are only one of several factors in your decision to buy a home, which may also include building equity, tax benefits, having forced savings, and pride of home ownership to name just a few.

Therefore, now is as good of a time as any to pursue your dream of purchasing the new home you’ve always wanted. And since it seems pretty certain that interest rates could increase further over the course of this year, you may in fact want to think about accelerating your home buying plans. Make sure your cash is ready and available for a down payment and obtain an underwritten pre-approval for a mortgage as soon as possible. These steps will help you lock-in your interest rate as soon as your offer is accepted, and before rates rise any further.


Marissa Martini-Cyprys is a licensed real estate agent with the Maryanski Group at Keller Williams City Life Realty. As a resident and homeowner in Hoboken, she has extensive knowledge of the local residential real estate market. When she is not busy helping her clients, she enjoys spending time with her husband Jon and little boys Jacob and Cameron, and taking advantage of the wonderful community resources, activities and events Hoboken offers young families.

For help with all of your real estate needs, contact Marissa directly:

Email: Mobile: (973) 723-2333