Just How Much Will a Higher Mortgage Rate Cost You?

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  • Mortgage rates have been steadily increasing over 2022.
  • Higher rates mean a higher cost to borrow.
  • Both monthly payments and total interest costs over time will go up when rates rise.

You may be surprised at how a change in mortgage rates affects homeownership costs.

Mortgage rates have been on the rise in recent months, which isn't surprising because they hit record lows during the heart of the pandemic.

But while this may have home buyers worried about an increase in their housing expenses, it's worth taking a look at just how big of an impact an increase in rates could have on your monthly and total costs.

Here's how much more a home buyer could expect to pay for a property if they borrow to buy it at average rates in mid-March compared with if they'd taken out their loans at the start of the year.

This is what an increase in mortgage rates will cost you

On Jan. 3, 2022, the average interest rate on a 30-year mortgage loan was 3.369%. By comparison, on March 14, 2022, the average rate had climbed to 4.212%.

Based on this rate change, you'd be looking at a bigger payment each month as well as more money over time.

  • Specifically, for each $100,000 borrowed, your monthly principal and interest payment in January would have been $442 and your total interest costs over time would have been $59,035.
  • But if you borrowed at March 14th's average rate instead of January's, your monthly principal and interest payment would have climbed to $490 and your total interest costs would have reached $76,298 per $100,000 borrowed.

This change in rates would leave you paying an extra $48 every month and an additional $17,263 over the course of 30 years.

Should you worry that your mortgage will cost you more?

Obviously, no one wants to pay more to buy a home than they have to -- and the above math shows you'll be on the hook for quite a bit more interest if you buy a home now than if you purchased it earlier this year.

But while this increase in rates isn't ideal, in the grand scheme of things it's usually not a deal breaker for most borrowers. That's because homeownership is usually a smart financial decision over time, provided you don't over-stretch your budget so you face foreclosure or have too little money for other goals.

As a homeowner, you build equity that helps you grow your net worth as you repay your mortgage loan and acquire an ever-increasing ownership interest in a valuable asset. And while you have to pay interest for the privilege of buying your home, you also get to live there and avoid paying rent -- and you may be able to deduct the interest you're paying from your taxable income so Uncle Sam subsidizes some of these costs.

Ultimately, you shouldn't necessarily let the fact that you'll pay a bit more for a home now deter you from buying if you can find a reasonably priced property that's well within your budget. If rates drop later, you always have the option to refinance -- and if they don't, you'll be glad you locked in your costs at today's relatively low rates rather than at the higher rates you could face in the future.

Our Research Expert

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