For the last 5 years, there has been a lot of talk about interest rates. Every three months, it has felt like, there has been a new low set in regard to mortgage rates. Then about six months ago, rates suddenly jumped back up, based on perceived economic strength. Now, they are still at unprecedented levels, historically, but they are higher than they were this time last year. So what does this mean for those seeking a mortgage, or those in adjustable rate mortgages?

For those seeking a mortgage, the interest rate directly impacts the monthly payments. The higher the interest rate, the more money each year in interest costs, and the more money paid each month to cover that cost. Now how much of an impact does the interest rate actually have? Well, the difference between a 4% interest rate and a 4.25% interest rate on a $100,000 mortgage is $14.52 per month. Add that up over 30 years and it is certainly not nothing, but from a monthly cash flow perspective, it is not the Armageddon we’re hearing on the news.

For those who are in adjustable rate mortgages, the increasing rates can be a bit more troubling. Rates can only go so low, and it seems we may have hit that point. If so, when your adjustable rate mortgage adjusts, it will have to adjust up. Each adjustment is based on the index your adjustable rate mortgage is tied to, so as rates trend up, the index will, too, and so will your adjustable rate. Adjustable rate mortgages have been great for borrowers over the last half decade, but it might be time to reevaluate your mortgage situation to see if refinancing into a fixed rate could protect your rate.

If you have any questions about how the changing interest rates will affect you or your mortgage, please feel free to contact me. And if you have anything to add about the impact of interest rates on a mortgage, please leave a comment.