Could interest rates be on the rise?

With FHA mortgage insurance premiums said to rise sometime in 2013 and the gradual increase we are seeing in home pricing can we afford for interest rates to go up as well? I don’t think we have much choice in the matter as long as the economy continues to improve we will see a gradual increase in rates. What does that mean in dollars and cents to the average home buyer? Well, let’s take a 220k home purchase and look at the monthly mortgage payment at 3.25% vs. a 5% increase in home prices and a 1% rate increase….

Now as you can see below that even a 1% increase can make a huge difference in the life of your mortgage as well as the monthly payment amount. Even if you look at scenario 1 where the home price decreases by 5% you are effected by the higher interest rate. All the experts are predicting that values will continue to rise so if you are thinking about buying now is the time while home affordability is still at a 40+ year low.

NOW SCENARIO 1 SCENARIO 2
Homes Decline 5% Homes Increase 5%
1% Rate Increase 1% Rate Increase
HOME PRICE $220,000.00 $209,000.00 $231,000.00
DOWN PAYMENT $12,000.00
LOAN AMOUNT $208,000.00 $197,000.00 $219,000.00
INTEREST RATE 3.250% 4.250% 4.250%
MONTHLY PAYMENT $905.23 $969.12 $1,077.35
Extra Monthly Cost $63.89 $172.12
Extra Cost – Loan Term $23,001.28 $61,962.92
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