At the start of 2015, many real estate experts predicted that the Federal Reserve Board would raise interest rates in the second half of the year, urging many buyers to make a move in the first portion of the year. Fortunately, for many buyers in 2015, the Fed didn’t decide to raise interest rates until the very end of 2015.
With news of rising interest rates, many Knoxville buyers and sellers are left to wonder: what does an increase in interest rates mean for Knoxville homes for sale?
What Does An Increase In Interest Rates Mean?
The Fed actually isn’t the one that raises interest rates, instead they set a target interest rate for federal funds, which is the rate at which banks borrower money. So, when banks are stuck paying a higher interest rate, they pass it along to borrowers. After the Fed announced an interest rate increase in the middle of December, interest rates increased almost instantly.
What Does An Increase Mean For Buyers?
If you’re like many Knoxville buyers, you may be worried what an increase in interest rates may mean for buying a house in 2016. You’re right to be a little unsure or worried, an increase in interest rates means you’re paying more a month in interest, so you can afford less home.
Here is an example of just how greatly an increase in interest rates can influence your monthly mortgage payment:
A borrower who took out a 30 year mortgage at a 3.9% interest rate in 2015 for a $200,000 mortgage would pay $944 per month for the mortgage rate. In comparison, with 6% interest rate on the same home, you’d pay $1200 a month for a mortgage.
While that seems like a significant jump, it’s important to know that rates don’t rise drastically overnight. The Fed’s initial increase is expected to be small, somewhere around a quarter of a point, which means interest rates would just rise to 4.16%, making the same mortgage payment only jump about $30 per month.
Will It Be Harder To Sell A Home?
As a whole, sellers will not be immediately effected by the interest rate increase. There is still a very strong demand for houses, and many buyers are finding themselves in short supply of homes that meet their standards. Interest rates are still expected to stay low enough throughout the course of 2016, which means that many buyers will not hesitate to buy a Knoxville home for sale.
Bottom Line – You Won’t Notice Much Of A Change
Buyers in 2016 will still enjoy historically low interest rates, with interest rates expected to rise to about 4.65%. Even with the increase, interest rates are still historically low and very affordable. Keep in mind, the historic average for mortgage interest rates is 8%. This year will be another great year to buy or sell a home in Knoxville.
re you thinking about buying a Knoxville home this year? If so, do not hesitate to contact Knoxville Home Team if there is any way that we can assist you. Rick can be reached at 865-696-9002 or via email at [email protected]. Kati can be reached at [email protected]. Also, be sure to check out our Knoxville Home Search Page to see what homes are for sale in the Knoxville area.
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