Interest Rates Climb to 8-Month High

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Last week’s Freddie Mac mortgage survey pegged the 30-year fixed mortgage rate at 5.21%, the highest since August of last year.  While rates are still relatively low, the increases in the last few weeks will likely mark the end of record low rates.

The timing of the increases over the last couple weeks falls in line with the end of mortgage-backed security purchases by the Fed leaving the MBS market to stand on its own.  This signals higher borrowing costs for investors, increasing the total cost of the home and decreasing monthly cash flow until rents start rising.  In fact an increase of 1% on the interest rate of a mortgage can increase the total cost of a home by 19%.  So while it’s expected that home prices could decline further nationwide with additional inventories hitting the market, the borrowing costs could affect the total investment even more.

Considering the fear that people had about rates skyrocketing when the Fed stopped MBS purchases, the damage looks to be pretty small at this point.

Let’s take a quick look at recent interest rate history:

As you can see rates on everything with the exception of the 1 Year ARM rate is trending up.   If rates increase only another 12 basis points, we’ll be reaching levels unseen since 2008.  This can have a serious impact on a property purchase. For example;

If you purchase an investment property for $100,000 and put down 20% on a traditional 30-year mortgage at 5.75% your monthly payment will be $466 (before taxes and insurance), and your total of payments will be $168,000 over the life of the loan.

Just 1% more and you monthly payment rises to $518 and your total of payments is near $187,000, a 19% increase in the cost of the home, meanwhile affecting your cash flow by $52 per month.

Take the same property but instead of buying it at $100,000, you decide to wait until the prices drop.  The prices end up dropping another 6% and you get the house for $94,000, putting down the same 20% and financing $75,200.  So by timing the market you scored an extra discount.  Unfortunately rates went up to 6.75% and your monthly payment is $488 and your total of payments $175,500, actually adding nearly 8% to the total cost.

Pay attention to interest rates and if you’ve been waiting for that 2nd dip in prices, you should be running interest rate scenarios to see if it’s worth it.  Rates might climb slowing after these initial increases but there’s no doubt the trend is higher.

Photo Credit:  Mortgage News Daily

About Author

Ryan Hinricher is a Real Estate Entrepreneur, Blogger, Change Advocate and Founder of Investor Nation, a concierge realty and real estate investment company focused on the needs of the residential investment home community.


  1. Ryan, I have to agree with you on that 2nd dip. Rates have been at all time lows for some time now, and sooner or later they will go up. The fed keeps talking about raising rates and one of these days they will so like you I urge using caution in waiting for that 2nd dip.

    Visit Liz Voss’s last blog at San Antonio Homes.

  2. So glad I bought some property before the rate hikes, seriously consider that dumb luck on my part… My broker just locked my FHA loan earlier this month at 5%, and the rates on the rentals are also very generous.
    I also think we’re in this dead cat bump in prices, right now it’s a rush to get that 8k credit, after that we will see the real damage once there are no artificial market drivers. If rates climb but prices drop – I’m hoping that will somewhat keep things even for a little while longer.

    • Yeah Max, we’ll see all the government intervention wane here soon. I’m thinking the lack of building will allow this big wave of foreclosures to cause limited damage on prices. Probably not a big increase in prices for the next couple years.

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