Should the Market Fear a 6% Jump in Rates?

The Federal Reserve’s decision today could potentially bring a close to a seven-year streak of very low mortgage rates. Here’s what an increase in rates could mean for the housing market.

“The potential move away from zero interest rate policy, for short-term rates, is a harbinger of higher mortgage rates ahead and the beginning of the end of this seven-year era of incredibly low mortgage rates and corresponding high affordability,” says Jonathan Smoke, realtor.com®’s chief economist.

Smoke says that mortgage rates that rise to 6 percent could have a big impact to what borrowers pay on their monthly mortgage. For example, in May, the average loan with a 30-year fixed-rate mortgage was $231,000 at a 4.03 percent average rate, which carried a monthly payment (principal and interest) of $1,107. However, that same loan amount at a 4.53 percent interest rate would jump the monthly payment to $1,175 – a 6 percent increase, according to realtor.com®’s analysis.

First-time home buyers may be particularly hard-hit, as well as high-cost areas.

Source: “Fed Decision Could Raise Mortgage Payments 6 Percent; and Out Price Potential First-Time Home Buyers in Certain Markets,” RISMedia (Sept. 16, 2015)