Mortgage rates are on the rise. In fact, they’re set to increase more in the next 12 months than they have in the last 30 years. So, what does this mean for homeowners? Simply put, it means that your monthly mortgage payments could go up significantly. If you’re thinking of buying a home or refinancing your current home loan, now is the time to act. Read on to learn more about how rising interest rates will affect your mortgage and what you can do to keep your payments manageable.
How Rising Interest Rates Will Affect Your Mortgage Payment
Mortgage rates are projected to rise steadily throughout 2018 and 2019. By the end of 2019, the average 30-year fixed-rate mortgage is expected to reach 5.5%. That may not sound like much, but it represents an increase of nearly 1% from today’s average rate of 4.64%.1
What does a 1% increase in mortgage rates mean for you? If you’re paying £1,000 per month on a 30-year fixed-rate loan with an interest rate of 4%, a 1% increase would raise your monthly payment to £1,010. And if rates continue to rise as expected, your payment could go up even more.
Of course, rising interest rates aren’t all bad news. If you have an adjustable-rate mortgage (ARM), a higher interest rate may actually lower your monthly payment since ARMs are typically tied to short-term interest rates like the London Interbank Offered Rate (LIBOR).2 However, there’s no guarantee that LIBOR will rise at the same pace as mortgage rates, so it’s important to speak with your lender to see how a potential rate increase could affect your specific situation.
What You Can Do to Keep Your Mortgage Payment Manageable
If you’re worried about how rising interest rates will affect your budget, there are several things you can do to keep your mortgage payment manageable:
- Lock in a low rate now: If you’re planning on buying a home or refinancing your current home loan in the near future, lock in a low-interest rate now before rates start to rise further. Most lenders allow you to lock in your rate for 30, 45 or 60 days, so you’ll have time to shop around and compare offers without worrying about rising rates.
- Make a larger down payment: A larger down payment will lower your loan amount and help offset some of the effects of rising interest rates. If you can swing it, aim for 20% so you can avoid paying private mortgage insurance (PMI). Not sure where you’ll get the extra cash? Check out other articles on our site to find out more about how you can generate extra income.
- Refinance into a shorter loan term: Refinancing into a 15-year fixed-rate mortgage will likely result in a higher monthly payment, but it will also allow you to pay off your home loan faster while saving thousands of dollars in interest over the life of the loan. Plus, with today’s historically low rates, your monthly payment could still be lower than it is now even after factoring in the shorter loan term.
- Look into government programs: There are several government programs available that can help make homeownership more affordable for low- and moderate-income buyers. The Federal Housing Administration (FHA) offers loans with low down payments and flexible credit requirements while Veterans Affairs (VA) loans don’t require any down payment at all.
Mortgage rates are on the rise—and they’re expected to keep going up throughout 2022 and beyond. If you’re thinking of buying a home or refinancing your current home loan, now is the time to act. Keep reading for more information on how rising interest rates will affect your mortgage and what you can do to keep manageability payments manageable despite increasing costs..
