What Higher Mortgage Interest Rates Mean For Your Custom Built Home.

blog / April 4, 2023

Higher interest rates on mortgage payments can have a significant impact on the affordability of home ownership. This is particularly true for high-value mortgages and custom build homes. With a One Million Dollar mortgage, even a small increase in interest rates can result in a substantial increase in monthly mortgage payments.

Let’s consider a scenario where a borrower takes out a 30-year fixed-rate mortgage for $1,000,000 at a 5 percent interest rate. In this scenario, the borrower’s monthly mortgage payment would be $5,368. This amount includes the principal and interest on the loan and does not include other expenses such as property taxes, insurance, or HOA fees.

Now let’s consider a scenario where the interest rate on this same mortgage increases to 7 percent. In this case, the borrower’s monthly mortgage payment would increase to $6,719, which is a difference of $1,351 per month. Over the life of the loan, this increase in interest rates could result in the borrower paying tens or even hundreds of thousands of dollars more in interest.

It’s important to note that even for wealthy individuals, this is a significant swing in monthly mortgage payments. While they may be able to afford the higher payments, it could impact their overall financial plan, including their ability to save for retirement or other financial goals.

For many borrowers, a change in interest rates of just a few percentage points can make the difference between being able to afford a home or not. This is why it’s essential to carefully consider interest rates when shopping for a mortgage and to seek out the best possible rates based on one’s financial situation.

What is happening with today’s rates? Let’s take a deeper dive into things.

Mortgage interest rates, which have remained relatively stable since November of the previous year. This has resulted in 30-year mortgage rates hovering in the 6-7 percent range, which is considered a moderate rate. When we look at our existing pipeline we realize that potential clients hit the breaks on new construction projects while they watched interest rates rise from 3 percent to 7 percent from November of 2021 to November of 2022. Now that things have stabilized, activity for custom homes is up again. Does that mean interest rates are down? Not quite.

Pressure on interest rates is coming from both sides of the interest rate spectrum. On one hand, there is pressure to raise interest rates due to reports of inflation, strong payroll results, and low unemployment rates. These factors suggest a strong economy, which typically results in higher interest rates as lenders seek to balance supply and demand for credit.

On the other hand, there is pressure to lower mortgage rates due to talks of a possible recession, recent bank failures, and weakening global markets. These factors suggest a weakening economy, which typically results in lower interest rates as lenders seek to stimulate demand for credit.

The recent inflation reports have caused some concern in the market, as they suggest that the Federal Reserve may raise interest rates sooner than anticipated. However, it is important to note that inflation rates have been relatively low over the past decade, and it is unclear whether these recent reports indicate a longer-term trend or a temporary blip.

At the same time, there are concerns about the strength of the global economy, particularly in Europe and Asia. The recent bank failures and weakening markets in these regions have raised concerns about the potential for a global recession, which could result in lower interest rates as investors seek safe havens for their money.

Despite these conflicting pressures, it is likely that the mortgage market will remain relatively stable in the short term. This is because lenders are currently able to balance the pressures to raise and lower interest rates, resulting in moderate rates for borrowers.

However, as economic conditions continue to evolve, it is possible that the mortgage market could experience significant changes in the coming years. Borrowers and lenders alike should remain vigilant and stay up-to-date on the latest developments in the market to ensure that they are able to make informed decisions about their financial futures.

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