There is no need to panic about rising interest rates in 2017. Yes, it is disheartening to be in the middle of the home buying process and see your rate go up a half a percent. Over the life of a 30 year mortgage that can be tens of thousands of dollars, but in reality very few people keep the same loan for 30 years or own their home for that long. Many homebuyers from the early eighties will tell you about mortgage interest rates as high as 15-17% or even higher.
A mortgage loan of $250,000 at 3.5% over 30 years is $1123/month. The same loan at 4% is $1194/month, which is a difference of $71. This is significant, yes, but historically rates are still very low. When I bought my first home in 2003 my interest rate was 6.875% and we were extremely lucky to get that rate. The same loan of $250,000 would cost $1642/month! The days of rates under 4% may be gone for a while, but it certainly could be much worse.
You will probably sell your home in under 10 years if you are a first time homebuyer, but a recent study found that the average is 13 years. The chances are you will not end up paying tens of thousands of dollars in extra interest with a small rate jump. Even if you do own your home 13 or more years you will more than likely refinance when rates drop. This would be more likely if you purchase when rates are even higher than they are now (currently low 4%s).
Mortgage interest rates in 1981 were an average of 17% and that isn’t going to happen again. It’s just not going to happen. I am not peddling panic. The economy is stronger with low rates and that is understood by the powers that be. 5-6% may happen again, but double digits would cripple the US economy.
If rates go too high, prices come down. Many homebuyers decide on their purchase price range by seeing how that translates into a monthly mortgage payment. A higher rate would be a larger payment therefore they will choose to pay less for a home or opt for a lower price range. This will drive prices down and perhaps create a healthier balance by shifting the market from a seller’s market (which is what we had in 2016) to a balanced or a buyer’s market.
Just stay calm, buy or sell a home when the time is right and call me when that time comes!