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Household budgets: New buyers face rising loan costs

Sep 30, 2014, 8:22 AM | Updated: Mar 4, 2016, 5:46 am

The home market clearly is on the rebound and inventories in many Puget Sound neighborhoods remain low.

Mortgage rates have hovered around yearly lows for weeks. But with rate-hike forecasts looming, can buyers count on borrowing costs to stay low?

Many economists are now predicting the average 30-year fixed-rate mortgage to reach 5 percent by the middle of the next year, The New York Times reported. Freddie Mac recently reported the 30-year fixed-rate mortgage averaged 4.20 percent. The hike in rate is partially due to the Federal Reserve’s plan to withdraw from buying mortgage-backed securities.

Economists note that while a 5 percent mortgage rate is low by historical standards, such an increase still has the potential of reducing buying power in a home purchase.

For example: According to some estimates, a 1 percent increase in interest rates can raise a monthly mortgage payment on a typical home by more than $700 in pricier parts of the country. The increase would likely be much more modest in other, less expensive markets.

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Household budgets: New buyers face rising loan costs