Rising interest rates, for some homebuyers, can be beneficial. While it is true, rising interest rates do diminish purchasing power for the right situation, it actually could be beneficial. Here is what to know…

Most people look at the big picture. They look at interest rates, the cost of funds and make a determination about whether or not they want to buy a home or not. Many people right now are on the fence and are waiting for the market to change. More specifically there’s probably something else going on financially they just can’t afford the payment, the credit score is not good enough, the debt load is too high, or there’s not a down payment.

Rising interest rates do the following things for buyers.

1. Rising interest rates remove competition as rates rise your competition to buy a house goes away. Do you want to go up against one or two offers? When interest rates are not very favorable for most people expect little competition, when rates drop, expect competition to come roaring back. When supply is limited housing prices don’t automatically drop, but they become far more negotiable as rates etch up. In other words, you could lower the purchase price of the house to offset the higher interest rate from a payment perspective.
2. .5 an interest rate represents about $50,000 of purchasing power. For example, two months ago interest rates were at 6.5% on average. That $650,000 home you could get for 640k considering interest rates are hovering right around 7% could be bought for $610k. Use this to your financial benefit.
3. Less buyers going for the same home= seller feeling the pain. They have choices to make i.e. pull the house off the market, lower the purchase price of the home, or pay points for you to lower your interest rate and lower your monthly payment. The seller can lower your monthly payment by paying points, and if the seller lowers your monthly payment by virtue of paying discount points that becomes a tax deduction for the year in which you purchased a home. For example, if they give you $10,000 towards paying discount points you get to write off at $10,000 in the year in which require the home plus your interest and your real estate taxes.
4. Rising interest rates might push your debt to income ratio, but it gives you more advantages for reducing the payment, getting a lower interest-rate, getting a bigger, tax, deduction, increasing your odds of getting the home, paying a fair price for the home, which is a big win, all while setting yourself up for a healthy refinance when interest rates drop.

If you’re thinking about buying a home and you’re not sure whether or not, you should proceed or not, it would be worth your while to get prequalified with a quality lender who’s experienced who can specifically articulate where the market is how it relates to your monthly budget. Looking to buy a home? Get a no cost quote now.