In the past few weeks the cost of obtaining a new mortgage has climbed as a result of higher mortgage rates. And while consumers are expressing worries over this new trend, those fears have not yet translated to the market itself.
At the end of June, 13 percent of consumers said that if mortgage interest rates climb into the 4 percent range — which they since have — that they would find it far more difficult to be able to afford a home, according to a recent poll by the real estate industry tracking firm Trulia.
Meanwhile, roughly one in five responded similarly about interest rates climbing to 5 percent, and slightly more than that felt this way about levels of around 6 percent. In all, 41 percent of those polled said that their biggest potential fear if they were to try to buy a house now would be that rates would increase before they were actually able to close the deal.
The reason for this is obvious, though, because higher interest rates mean higher monthly costs to meet mortgage payment requirements, the report said. For instance, the national average was at about 3.35 percent in May, meaning that monthly payments on 30-year fixed loans worth $200,000 would cost $881. However, with rates coming in at 4.46 percent in late June — constituting a 14 percent increase in less than six weeks — the same loan would cost $1,009 per month.
But despite the consumers’ stated concerns, the increase in rates seems to have had little impact on home purchases, the report said. The most recent data from the Mortgage Bankers Association shows that the number of applications for new mortgages rose 2 percent from May to June, and by the end of the latter month was up 11 percent on an annual basis. However, current homeowners who may have wanted to refinance are certainly feeling the sting from spiking rates, as applications to alter existing loans fell 24 percent month-over-month and 40 percent from the same time last year.
Despite the recent increases, mortgage rates remain extremely affordable on a historical basis, as they are still lower than what most homeowners are paying currently. However, the combination of rising prices and interest rates together could serve to significantly reduce affordability over the next few years from the all-time low levels observed from the start of 2012 until now.