Interest rates have increased over the past 6 months and this is catching many potential homebuyers by surprise. As interest rates increase, purchasing power decreases. Why are rates increasing?
Well, if you’ve been following the mortgage industry you know that several large lenders have filed for bankruptcy. Most lenders take out large lines of credit with international investment companies in order to fund their loans. These investment companies then take these loans and bundle them into mortgage backed bonds and sell them in the open market. When the home owner defaults on these loans the bonds become virtually worthless and the investment company takes a loss. So, it only makes sense that these investment companies are becoming a little “gun shy” when extending lines of credit to lenders. With less money available to the lenders and the investment companies expecting a higher return on their money to cover potential losses the lenders are having to increase rates in order to satisfy their investors (investment companies).
What does all of this mean for the homebuyer? It’s simple, you’re not going to get an interest rate as low as you could 6 months ago. As long as the problems in the industry continue, rates will stay at an elevated level. This translates into less home for the same monthly payment. We’ve all been spoiled over the past 5 years with historically low interest rates and unusually high home appreciation.
Thankfully, there is good news! Interest rates are still far lower than they were in the 1980’s and 1990’s. People were buying homes then and they still are now.
Keystone Mortgage provides Tennesseans with the best mortgage experience, period. So what are you waiting for? Apply here now.