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Rising Mortgage Rates? How This Can Impact You

When the economic downturn gripped the nation several years ago, high unemployment rates, layoffs and mortgage foreclosures were common topics featured in news stories. Despite these ominous economic clouds, there was one silver lining that consumers benefited from. The economic downturn resulted in mortgage rates being close to historic lows for a lengthy period of time. Now that the economy is recovering, unemployment rates are lower, stories about layoffs are minimal and mortgage foreclosures have slowed. In addition, interest rates are now rising. You may be wondering how rising mortgage interest may affect you.

Your Investments
When mortgage interest rates rise, the spread between deposit rates and mortgage rates increases. This means that the return on investments such as bonds and CDs may be lower in coming years. In fact, mortgage rates are expected to continue to rise throughout the coming year, and this means diminished returns for fixed rate investments. These fixed rate investments are generally used most commonly by retirees or those who are rapidly approaching retirement due to their relative security. Therefore, this particular group of individuals may feel a greater impact from rising rates.

Refinancing Your Mortgage
The lower interest rates in recent years triggered a considerable uptick in mortgage refinancing. Many homeowners took advantage of lower interest rates to lock in a lower mortgage payment or a shorter term. Many also took equity out of their home to pay off credit cards, make improvements to their home and more. With interest rates rising now, refinancing will become considerably less attractive for many home buyers. This means that funds that may be used to make home improvements, take large vacations and more may need to come from other sources for many individuals.

Your Home-Buying Power
Another important impact that will affect individuals relates to their home-buying power. Lower interest rates meant that home buyers could afford to purchase a larger or nicer home. In some markets, this resulted in stabilization in housing prices or even an increase in housing prices. Sellers had an incentive to sell their homes, and buyers enjoyed the ability to get more home for their dollar. However, as interest rates rise, home buyers will not be able to purchase as large or as nice of a home as they previously could. This may result in decreased interest in home purchases in some markets, and it may stabilize or decrease home values in some markets. It is important to note that mortgage interest rates are currently relatively low right now, and they are anticipated to continue to rise throughout the next year or two. Because of this, it may be more ideal for home buyers and sellers to take action sooner rather than later. Therefore, you may see a general decline in sales in some markets over the coming years as rates continue to rise.

As you can see, there are a number of ways that interest rates can affect you. Even if you do not plan to buy or sell a home in the coming years, the fact is that adjustments in housing prices, fixed rate investments and other factors can affect you. It is important to be aware of the changes that rising interest rates likely will trigger and to prepare yourself for the impact the rising rates may have on your life.

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Don Anfuso is a mortgage broker located in northern New Jersey. He enjoys blogging about mortage advice and news.

Numbers Of First Time Buyers On The Rise

Despite low numbers of houses currently available on the market (approximately the same as in May 2004, according to recent reports), the number of first time buyer is rising. According to the latest Housing Market Report from the National Association of Estate Agents (NAEA) the percentage of homes sold by members in February to first time buyers has increased to 29%, an almost unprecedentedly high figure. Against this, though, the average number of properties sold has remained largely static, meaning that the numbers of houses currently changing hands has dropped, as of course first time buyers are not also selling a house. High uptake from first time buyers has the overall result of reducing available housing stock. Help to Buy deals have not changed, however, remaining at around 4% of the total.
An interesting demographic

The largest group – almost half of the total – are in the 31-40 age group, bearing out recent news reporting of the boomerang generation, those who have gone back to parents after education while they save for a deposit. Almost a quarter of sales were to people relocating, which suggests a more fluid job market. Confidence in property is continuing to rise, meaning that people moving for work are now more likely to buy rather than rent, no longer fearing they will be stuck with a house they won’t be able to sell later. Most homes now sell in an average of 11 weeks from sale agreed to completion.
Lower priced properties in demand

Some commentators do fear that there may be a price-hike in lower priced properties as these are particularly needed by first time buyers using the Help to Buy initiative to help with deposits. The president of the NAEA, Jan Hÿtch, has been quoted as saying, ‘With Help to Buy making it easier for new purchasers with low deposits to buy a home, the appetite for buying in this [lower] price range, combined with the diminishing supply of first time buyer properties, could drive property prices up further in this sector.’ There is a correspondingly higher supply of higher priced properties, historically the next step for those upgrading from their first home. These properties will be the next to see a shortage, as the first time buyers of 2014 become the upscalers of a few years down the line.
Generally a good sign

After over five years of a failing housing market, the signs are good that sales are now buoyant and that more people are taking the plunge and buying rather than renting a home. The rental market is also doing very well, with demand exceeding supply, so there is clearly a need for more housing to be built to fill the need that is there. The days of houses hanging on the market unsold sometimes for years appear to be over, with estate agents reporting that numbers of sales are not diminishing outside a statistical margin – first time buyers are the upscalers of the future, so hopefully this trend will continue.

Article written by Rebecca Kilburn, freelance copywriter who often writes for ADM Residential.