Interest Rates on Mortgages Are Going Up—Here’s What That Means for You

You might want to buy now and lock in a low rate, while you still can.

Image: Zillow

Since 2013, we’ve been in what mortgage experts might call a golden era for interest rates. They’ve steadily declined right up to November 2016, hitting record lows. And we’ve gotten comfortable with those low rates—many of us, especially first-time homebuyers, consider a 3- to 4-percent rate normal.

We don’t have to tell you that a lot changed in November. One specific thing, though, will have an immediate, direct impact on Hawai‘i’s housing market: In December, the Federal Reserve (the Fed) raised rates a quarter of a point. This is only the second rate increase we’ve seen in a decade, but it’s likely a sign that this is the end of that golden era. The Fed made it clear we should expect more rate increases in 2017.

As a result, mortgage rates have crept up from a low of 3.5 percent to 4.25 percent for a 30-year, fixed-rate loan. We asked Tim O’Leary of HomeBridge Financial Services what that means in terms of a monthly payment.

“A buyer in today’s real estate market can expect to pay an estimated $43 more per month for every $100,000 borrowed,” said O’Leary. He further simplified it for us with the following: “If you borrow $350,000 at 3.5 percent, the monthly payment would be $1,572. Borrow that same amount at 4.25 percent, and you’re now facing a monthly payment of $1,722—a difference of $150 per month, or $1,800 per year—for exactly the same property.”

So, if you’re waiting a bit to see if the market will slow down or prices will decrease, or you’re qualified to buy now but holding off while you build up your down payment, it might be time to reconsider and lock in a low rate while you can.