Outstanding mortgage debt totaled $11.71 Trillion on June 30, 2022
Home loans, the largest type of US household debt, are equal to 72.6% of total personal debt (Federal Reserve Bank of New York).
Recent headlines point to the sharp increase in interest rates and the expected impact on both home buyer and sellers. Not surprisingly, housing sales have slowed in recent months.
The simple fact is that higher interest rates make homes less affordable.
Let’s look at the example of a 30-year mortgage on a $250,000 home loan.
- With a 3% mortgage rate home buyer spends $1,054/month.
- With a 7% mortgage rate home buyer spends $1,663/month.
For the same home! That’s a 63% increase in mortgage payment on the same $250,000 loan.
So what happens next?
Below are two perspectives on mortgage rates. A 30-year fixed rate mortgage is 7.24% on the day of this posting according to bankrate.com.
Perspective #1: Mortgage rates have risen sharply over the past year
Perspective #2: Mortgage rates have dropped sharply over the past 30-years
In the case of this example, BOTH perspectives are correct.
- Perspective #2, clearly shows that recent history, a time period that saw the interest rate on a 30-year fixed rate mortgage drop below 3%, appears to be an anomaly.
- Perspective #1 clearly shows a sharp increase from those historical low mortgage rates.
What will this mean for future home prices and interest rates? We’ll learn what happens next together, but some things won’t change.
The true cost of your home is far more than your mortgage.
Insurance, utilities, appliances, home repairs and unexpected events are all home expenses to plan for. Regardless of what direction mortgage rates and home prices trend, the most important thing to remember when buying a home is:
“If you can’t afford it, you can’t afford it.”
The Missing Semester
While your mortgage reflects the price you paid to purchase the house, the true cost of a home is far bigger than the mortgage payment.
Own your financial future!
