You may be surprised at the impact of changing mortgage rates on homeownership costs.
- Mortgage rates have risen steadily in 2022.
- Higher rates mean a higher cost of borrowing.
- Monthly payments and total interest charges over time will increase as rates rise.
Mortgage rates have been rising in recent months, which is unsurprising as they hit record lows amid the pandemic.
But while this may worry homebuyers about an increase in their housing expenses, it’s worth considering the extent of the impact a rate increase could have on your monthly and total costs. .
Here’s how much more a homebuyer could expect to pay for a property if they borrow to buy it at average rates in mid-March compared to if they took out their loans at the start of the year.
Here’s what higher mortgage rates will cost you
On January 3, 2022, the average interest rate on a 30-year mortgage was 3.369%. For comparison, on March 14, 2022, the average rate had climbed to 4.212%.
Based on this rate change, you are looking at a larger payment each month as well as more money over time.
- Specifically, for every $100,000 borrowed, your monthly principal and interest payment in January would have been $442 and your total interest costs over time would have been $59,035.
- But if you borrowed at the average March 14 rate instead of January, your monthly principal and interest payment would have jumped to $490 and your total interest costs would have risen to $76,298 for every $100,000 you borrowed. .
This rate change would make you pay $48 more each month and $17,263 more over 30 years.
Should you worry about your mortgage costing you more?
Obviously, no one wants to pay more to buy a house than they have to – and the calculations above show that you’ll be on the hook for a bit more interest if you buy a house now than if you had it. purchased earlier this year.
But while this rate increase isn’t ideal, overall it’s not usually a deal breaker for most borrowers. Indeed, home ownership is usually a smart financial decision over time, provided you don’t stretch your budget too much and risk foreclosure or having too little money for other goals.
As a homeowner, you accumulate equity that helps you grow your net worth as you pay off your mortgage and acquire a larger and larger stake in a valuable asset. And while you have to pay interest for the privilege of buying your home, you can also live there and avoid paying rent – and you may be able to deduct the interest you pay from your taxable income so that the Uncle Sam subsidizes some of these costs.
In the end, you shouldn’t necessarily let the fact that you’ll pay a little more for a house now deter you from buying if you can find a reasonably priced property that fits your budget. If rates drop later, you always have the option to refinance – and if they don’t, you’ll be glad you locked in your costs at today’s relatively low rates rather than the higher rates at which you might face in the future.
A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage
Chances are, interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.
Ascent’s in-house mortgage expert recommends this company find a low rate — and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.