Mortgage rates moved close to a one year high July 13th. And the Fed may raise rates this month.
Next month they could do it again. Or not.
That’s the nature of financial markets.
Every time mortgage rates change, home sellers cringe and buyers rethink their plans because their potential monthly payment just tweaked up. That’s understandable. Mortgage rates matter.
But I think buyers spend far too much time worrying about the wrong risk.
For most, the greater financial risk isn’t that mortgage rates moved another eighth of a percent. Frankly, if one hundred dollars per month is a breaking point for your home search, you’re searching in the wrong price point. Don’t sacrifice your lifestyle or financial security for high-end appliances and a finished basement.
The average 30-year fixed rate is now around 6.75%, continuing the back-and-forth we’ve seen for much of this year. The greater risks are that you buy too much house and place yourself in a financially insecure position, or that the market changes after you buy.
Everyone calculates the payment and almost nobody calculates alternatives and resilience.
Suppose you’re considering the purchase of a $500,000 home.
If mortgage rates rise from 6.50% to 6.75%, your monthly principal and interest payment increases by roughly $80 to $90. Over five years, it adds up to approximately $5,000. You believe that’s a story that should influence your decision to purchase.
It isn’t. Ask a different question.
What Happens If You Buy A Slightly Less Expensive Home?
You purchase a similar home that’s $50,000 less ($450,000.). Maybe the kitchen hasn’t been updated. The basement isn’t finished. Window replacements become next year’s project instead of today’s requirement.
With a 20% down payment, you’d borrow roughly $40,000 less. At today’s mortgage rates, that reduces your principal and interest payment by approximately $260 per month. That’s more than three times the impact of this week’s mortgage rate increase. And you’re on the property ladder.
Over five years, you’ve improved your cash flow by more than $15,000, while also carrying less debt and creating a larger financial cushion. The house you choose often has a much greater impact on your monthly payment than the interest rate itself.
That’s what alternative selection looks like.
Then ask one final question.
What Happens If The Market Changes Tomorrow?
It’s the question buyers rarely ask. Markets don’t always move in predictable cycles, but DC has enjoyed a solid track record. But… occasionally it’s disrupted by events no one reasonably anticipates. We’ve experienced exactly that over the past eighteen months. Some homeowners were unaffected. Some had to make sudden moves. Others, especially condo owners, saw their values drop significantly. No one had a crystal ball. But if you’re asking the right questions before you buy, you don’t need one.
The question isn’t simply whether you can afford today’s payment. It’s whether you’ve left yourself enough financial flexibility to absorb tomorrow’s surprises.
That’s what resilience looks like.
If you’re ready to purchase in the District, Alexandria or Arlington Virginia, get it touch and let’s have a conversation.
