Rate increase: NBD

Media are so invested in ‘reporting’ sensational news that often, stories are made out of nothing. For example, all of the major networks this week have reported a “hike” in interest rates – as if that was news worthy.

First of all, a “hike” in the woods is typically a big deal. A “hike”can also refer to down hill movement. So that choice of words is used out of the media’s numb mindset of “breaking news” and “shocking developments“. A more appropriate word to describe an interest rate increase would be “adjustment” as in, “interest rate adjustment“. Our speech patterns however, have gotten lazier so saying a 3-syllable word like “adjustment” might be too much work for media-types.

Consider the truth about an interest rate increase. If you get a home loan of $424,000 at 4.5% interest rate for a 30 yr. loan, your monthly principle and interest payment will be $2,085.83. Last month, that loan might have only cost 4.25% with a payment of $2,085.83. The total difference in this “shocking development” is $62.50/mth. That’s it. And, that slight upward adjustment translates into $178 more gross pay per month needed to qualify for the 4.5% loan. No big deal (NBD) – right?

Having said this, in a season of increasing interest rates, there is no value in waiting for better rates. The slight adjustment in payments pails in comparison to typical appreciation of the home’s value. Just a 5% increase in our example home’s value would be $2,208/mth (annualized). So, don’t procrastinate buying or refinancing a home rationalizing to yourself,  “I’ll wait until the rates go back down”. 

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