
As interest rates continue to rise, many homeowners are wondering how this will impact their mortgage costs. We’ve all heard horror stories about people who’ve seen their monthly payments double or even triple overnight, but is this really something we need to be worried about?
A mortgage’s interest rate dictates its monthly payments and the total cost over the life of the loan. Obviously, the lower the interest rate, the less you’ll pay in interest, which makes for lower monthly payments.
As an example, when your current interest rate of 3.5 percent jumps to 5.51 percent, it can result in a higher payment of $2,013.58 out of your $300,000 mortgage. While it may seem like a minor inconvenience to your wallets, the numbers can quickly add up, leading to a whopping $613,889.90 in principal and interest.
Dealing with the Rising Interest Rates
Rising interest rates can have a significant impact on your monthly mortgage payments. If you’re not prepared, the increased costs can really add up and put a strain on your budget. However, there are ways to save money and survive interest rate spikes. Here are a few tips:
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Today's Mortgage Rates- Get pre-approved for a mortgage. This will give you a clear idea of how much you can afford to spend on a home and can help you lock in a lower interest rate.
- Shop around for the best mortgage rate. Don’t just accept the first offer you get. Compare rates from a variety of lenders to make sure you’re getting the best deal.
- Consider a shorter-term mortgage. If you can afford the higher monthly payments, a shorter-term mortgage will save you money in the long run.
- Make a larger down payment. Higher down payment will lower your monthly payments and help you avoid private mortgage insurance (PMI).
- Keep your credit score high. A higher credit score will help you qualify for a lower interest rate.
- 2/1 Temporary Buydown. The effective rate is 2% lower in the first year and 1% lower in the second year. In the third year, the full note rate will apply. Call today to learn more.
With these tips in mind, you can still find ways to manage rising interest rates and get into the home you want.
Why the Federal Reserve Rate Hikes Are Closely Tied to Your Mortgage Loans
The Federal Reserve’s primary tool for controlling inflation is the interest rate, and when they raise rates, it affects everything from savings accounts to mortgages. A 0.25 percent interest rate hike might not sound like much, but it can have a significant impact on your monthly mortgage payment.
Of course, the interest rate is just one factor that determines your mortgage payment. The term of your loan, the type of loan, and your credit score will all play a role. But if you’re in the market for a new home or looking to refinance, it’s important to keep the Fed’s interest rate hikes in mind.
How About Fixed-Rate Mortgages?
Keep in mind that fixed-rate mortgages are not impacted by changes in interest rates. This is because the interest rate on a fixed-rate mortgage is set at the time of loan origination and does not change over the life of the loan.
While rising interest rates will not impact fixed-rate mortgages, they can have an impact on adjustable-rate mortgages (ARMs). If you have an ARM, your interest rate will adjust periodically based on changes in the market. This means that as interest rates rise, your monthly payment will also rise.
If you are considering taking out a new home loan, you may find that fixed-rate mortgages are more expensive than ARMs. This is because lenders charge a higher interest rate for fixed-rate loans, to compensate for the lack of flexibility. However, fixed-rate mortgages can provide peace of mind, knowing that your monthly payment will not change, even if interest rates rise.
The Bottom Line
The rising interest rates have been a hot topic lately. If you’re worried about rising interest rates, there are plenty of solutions that can help you stay afloat. Talk to your lender or financial advisor to discuss your options and find the best solution for you.
Contact Your Florida Mortgage Specialist Today!
If you are looking for a mortgage company in Cape Coral, Fl, then you have come to the right place. American Mortgage Solutions FL/KY offers a wide range of services that can help you with all your real estate needs, so get in touch with us today at call us at (502) 327-9770 for Louisville KY Office and for Cape Coral FL Office (239) 766-8344 and see how we can finance the home of your dreams. In addition to Florida, we are licensed in the states of Kentucky, and Indiana.
Do you know how much home you can afford?
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Today's Mortgage Rates