From the Associated Press:
At 4.67%, this week’s average rate for a 30-year, fixed-rate mortgage is up from last week’s 4.42% and notably higher than 3.18% one year ago.
"Average long-term U.S. mortgage rates rose again this week as the key 30-year loan rate vaulted over 4.5% and attained its highest level since the end of 2018. Against a backdrop of inflation at a four-decade high, the increases in home loan rates come a few weeks after the Federal Reserve raised by a quarter point its benchmark short-term interest rate – which it had kept near zero since the pandemic recession struck two years ago – to cool the economy. The central bank has signaled potentially up to seven additional rate hikes this year.
The developments mean that mortgage rates likely will continue to rise over the year.
Mortgage buyer Freddie Mac reported Thursday that the average rate on the 30-year loan this week rose to 4.67% from 4.42% last week. That’s a sharp contrast from last year’s record-low mortgage rates of around 3%. A year ago, the 30-year rate stood at 3.18%."
What does this mean for the potential home buyer? Well, if you're a renter in Naples/Collier County, you're paying an average just over $2100 a month for rent. A year ago, you could have bought a $400,000 house with a 20% ($80,000) down payment for a mortgage payment of just under $1400 a month. Taxes and insurance on a $400,000 home run about $850 a month, for a total house monthly payment of just over $2200 a month, almost the same as what you'd have paid in rent.
Of course, the $80,000 down payment can be a very high bar for many buyers, but buyers eligible for a VA loan need no down payment. For these buyers, the cost of a fully-financed VA loan at 3.18% would have meant a monthly mortgage payment of just over $1700 a month with taxes and insurance raising the cost to just under $2500 a month. That's a bit more than rent would have cost, but in just the first year the new homeowner would have accumulated over $8,000 in equity through paying down the loan principal. Of course, if the market continues to be a sellers' market, the homeowner will also be building equity due to the rise in the home's value.
Today, however, if you make the same 20% down payment, your 30-year mortgage will run you around $1700 a month, with taxes and insurance adding about another $850 per month for a total of about $2500 a month in housing costs. That's still a good deal, considering that you're building home equity that will always be yours, but it's not nearly as good a deal as a year ago. And if you're VA loan eligible so that you don't have to put any money down, you monthly mortgage rises to a little over $2000 a month, with total costs just over $2900 a month.
There are various other payment possibilities. For example, for about $100 a month for Private Mortgage Insurance, buyer can reduce their down payment to only 5%, or $20,000 for a $400,000 home. That can be much more manageable for home buyers. If you think this could be for you, contact a mortgage loan officer for more details.
Unfortunately, due to the higher mortgage interest rate, the new homeowner will only pay in the first year just over $5,000 towards the principal for a standard loan with 20% down (VA buyers will only pay down just over $6,000 in the first year), slowing the accumulation of equity through principal reduction. However, with prices still rising, the new homeowner will build equity because the value of his/her home will continue to increase.
More to the point, with no end in sight to either the sellers' market here in Naples or the rising mortgage interest rate, the sooner one buys a home, the lower the price and the monthly payment will be. Waiting will only cause more and more buyers to be priced out of the housing market, with no immediate prospects for getting back in.
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