Video: How Interest Rates Affect Your Mortgage

Home Buying

Video: How Interest Rates Affect Your Mortgage

Mortgage interest rates are on the rise after hovering around near record lows early in the year. The cost of a 30-year, fixed-rate loan was little changed this week at 3.84 percent, according to Freddie Mac. While that’s down from 4.14 percent a year ago, it’s up from the 3.59 percent low recorded in February.

The slow pace of rate hikes is good for buyers, many of whom are still taking advantage of still-cheap borrowing costs. However, there’s early evidence that even a slight rise in rates could weaken home sales. The Mortgage Bankers Association reported that purchase loan applications dropped 4 percent last week as rates ticked up.

The economy is improving and the Federal Reserve is expected to raise short-term borrowing costs by the end of the year. That means mortgages could soon get more expensive. For many buyers, the interest rate is a key factor in the decision to rent or buy. It also determines how much house they can afford.

To be sure, rates aren’t the the only motivation for would-be homeowners. Anthony Sanders, a professor of finance at George Mason University, points out that mortgage purchase applications were 31 percent higher in 2001, when the cost of a 30-year, fixed-rate loan topped 7 percent, more than three percentage points higher than now.

To see how a rate increase could affect your mortgage, check out the video above.

If you have questions about the home-buying process, check out more from the Tips and Advice section of the Redfin Blog or contact a Redfin agent in your area.

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