How Changing Interests Rates Will Affect Your Home Buying Power
Changing interest rates can freeze both buyers and sellers in their tracks. Sellers may be fine, provided they are able to stand pat and see how the market turns. Buyers, on the other hand, will likely ride a roller coaster of emotions as they look for their new home. Interest rates have an inverse effect on your home buying power, as you will read below.
Low Rates Mean More in Your Pocket
A change in the interest rate is not inherently a bad thing. In times where the rate goes down, home buyers see their purchasing power go up. This can make a huge difference in people’s lives, whether they are a first-time buyer or simply looking to make a change. A lower rate can mean securing a home that their family can grow into, giving them a chance to plan for their future. It can mean living in their top choice neighborhood, rather than nowhere close.
Most importantly, lower rates mean lower mortgage payments – leaving home buyers with more options. They can choose to stretch to their budgetary limit, which may be tempting if it means obtaining their dream home in their dream area. Or, they can choose to leave meat on the bone up front and decide to spend the savings elsewhere. Whether they choose to put that money into their home to increase equity or put it towards something else is entirely up to them.
Higher Rates Mean Higher Risk
When interest rates rise, buyers will see their home buying power decrease. When this happens, it has the potential to uproot even the best-laid plans. As we all know, real estate purchases are not decisions made on a whim; buyers often plan months or even years in advance before starting their search for a new home. It can be frustrating and demoralizing to folks who have worked hard to put together a down payment just to see that savings dip in value overnight through no fault of their own.
It is disheartening to be on the cusp of starting your home search only to find out that you can’t afford the mortgage you thought you would be able to. It also can mean changing your plan altogether. If you had been renting up until that point, you may be forced to sign another lease in order to save more towards a down payment. In the meantime, you are left hoping that rates come back down in the near future.
How impactful a rate change will be on your life will come down entirely to your unique situation. Some will be able to come to an agreement with their landlord relatively easily. Others may have fully committed themselves to being out of their rental and will need to find a short-term housing solution. Regardless, a changing interest rate can cause home buyers to radically adjust their expectations.
No Matter What, Dane Jensen Is Here to Help
Regardless of how rates are moving, Dane Jensen Realty is here to help you make the most of your home buying power. Whether you are looking in the city or on Lake Minnetonka, we will help you navigate through uncertain times. Together, we can get you home. Get in touch today to begin your home search process.