Expert advice on how to navigate rising interest rates if you plan to buy a home

Estimated read time: 2-3 minutes

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In January, mortgage interest rates were roughly 3% -3.25%. Fast forward to now and they are 5% or more. This 2% increase has a significant financial impact on anyone who plans to buy a home.

According to experts at The Stern Team, for every 1% that an interest rate goes up, it takes away 10% of affordability. That means if you were approved for $500,000 and interest rates went up 1%, you're now approved for only $450,000.

In a rising interest rate environment, buyers must shop below their max buying point to compensate. An article for NPR explains, "If you look at interest rates alone, the 2 percentage-point rise in interest rates we've seen so far adds $115 to the monthly payment for every $100,000 you borrow on a 30-year loan."

The Stern Team advises keeping an eye on interest rates and making sure you have reapproval with your lender every few weeks. Also, check with your lender to find out what programs they might have available. For example, you may be able to lock in on an interest rate for 90 days or they might be willing to let you float down to a new rate if rates drop.

Six more increases are likely between now and the end of 2023, according to a report from the New York Times.

Prolonged low inflation means that home buyers have become accustomed to mortgage rates that have remained low for several years. In fact, a Bankrate article notes the current level is the highest since April 2010.

Even though today's rate is the highest in 12 years, it is a long way from the peak reached in October 1981 when the 30-year rate hit 18.4%.

A benefit for some home buyers is that rising rates will price some people out of the market. "For some buyers, general inflation and related mortgage rate hikes mean less budget flexibility to pursue freshly listed homes," a report from CNBC explains. "For those who can afford to persist, a silver lining could be relatively less competition for more for sale home options, which could lead to some relief from relentless home price momentum."