What an “Interest Rate Hike” Means for New Home Construction Buyers [2022]

Updated: 4/26/22

Due to the ongoing pandemic, supply and demand constraints continue to affect industries nationwide. With the economy’s path continually depending on the course of the virus, inflation has officially hit a 40-year high. To keep the inflation rate under control, interest rate hikes are now in the foreseeable future.

What does this mean for new home construction buyers?

An “interest hike” sounds alarming, but in reality, it just showcases a healthy economy. Of course, the record-low interest rates we’ve been experiencing the last year or so have made home-buying more attractive and resulted in a massive new-home surge. But, just like any other variable in the market, nothing lasts forever. 

So, what does this mean for new home construction buyers?

1. Historically, Rates Are Still Low

Take a look at the chart below; interest rates have been steadily declining for over a few decades. And, even though MSNBC projects a 0.5% increase in March, historically, rates will still be low. All in all, if you’re in the market for a new home, you’re still going to get a great deal.

2. Increased Borrowing Costs

Higher interest rates mean people receive a better return on their savings, encouraging them to save rather than spend. Encouraging people to save should slow the increase in prices of everyday goods. With fewer buyers in the market, sellers will find it hard to keep raising their prices. Besides mortgages, rising interest rates impact the stock and bond markets, credit cards, personal loans, student loans, auto loans, and business loans.

A rise in interest rates means everyone ends up spending more on interest payments. Essentially, the amount of money you’re paying to borrow for a life of a loan to purchase your new home will increase. Although the actual increase value is uncertain, median forecasts from a recent Reuters poll showed the Fed raising interest rates three times this year, starting in March, to 0.75-1.00% by the end of 2022.

For example, let’s take a 30-year fixed loan of $350,000 and compare it to an interest rate of 3.75% and 4.25%.

*Calculation based on an Interest rate of 3.750%, downpayment of 20% on home value, a credit score of 720, principal and interest only. View Terms and Conditions of Use.

As you can see, even if rates hike three-quarters of a point in March, the difference between your monthly payment would be $102.65 – which in most cases, is less than a monthly cable bill. 

Knowing that the hike coming soon won’t drastically affect monthly payments is reassuring. However, please keep in mind rates could continue to rise as we move throughout the year. The longer you wait to buy, the more money you’ll spend down the road. Learn more on why waiting to build your dream home is costing you.

To help you navigate the complexities of interest rates and home-buying, we recommend using our preferred lender, RMC Home Mortgage. Not only will you get the best rate available, but you’ll also be eligible for extended rate lock options of 165, 270, or 360 days to help guarantee your rate during your construction process. Learn additional benefits of choosing RMC as your lender.

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