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It’s no secret that mortgage rates have been rising and, most likely, will keep going up in 2017. At its last meeting of 2016, the Federal Reserve projected three interest rate increases throughout the new year. So what does this mean for purchasing your first home? Will the rising cost of getting a mortgage keep first-time buyers from making the leap from a rental to a purchase in 2017?

Impact of Rising Interest Rates

“The recent increase in interest rates could have an impact on the number of people looking to purchase a home,” said Bill Banfield, vice president of Capital Markets at Quicken Loans. “Initial readings from the November Pending Home Sales Index showed a 2.5% monthly drop in sales with only a lack of inventory and higher interest rates to blame. For example, if a buyer were looking to finance $200,000 to acquire a home, a .5% increase in the 30-year mortgage rate (from 4% to 4.5%) would increase the payment by $58.54 to $1,013.37 before taxes and insurance.”

However, interest rates are not the primary influencer when it comes to first-time home buyer trends. According to Banfield, “The more critical factors will be job growth, wages and the chronic lack of supply of homes available for sale.” For example, there are only so many small starter homes on the market for first-time home buyers. “The lack of inventory does not seem to be an issue that will go away anytime soon,” he added.

Limited options, rather than rising rates, could deter buyers from hunting for their first home in 2017. Yet, for many renters, becoming a first-time home buyer could be the best resolution for the new year. “Quality of life, the desire for more elbow room and expanding families all point to life choices that can make owning a home a better choice for some people,” reminded Banfield.

Buying a Home Beats Renting in 2017

While the cost of buying a home has gone up for house hunters in 2017, for many people, purchasing a house could still be a better deal than paying rent. If you can afford a 20% down payment, and you move every seven years, buying a home is 37.7% cheaper than renting. If you have less than 20% to put down, you’ll have to pay for mortgage insurance, but buying still makes sense in a lot of cases.

Not only could your monthly mortgage payments be less than your current rent, but also you will see a return on the amount that you pay. With a mortgage, homeowners gain equity when they make their monthly mortgage payments. The more money you invest in paying off your mortgage, the more equity you gain in your home. While rent may only gain you a happy landlord, mortgage payments can earn you equity every month. So over time, you can translate your equity, or owned value of your home, into cash with a cash-out refinance. A cash-out refinance converts your home equity into cold hard cash that you can use to further boost your home’s value with improvement projects or for anything else in your budget!

If you make the switch from renter to homeowner, you could also see some real returns on the extra savings if you deposit the savings difference into a savings account that accrues interest. Rising interest rates means your savings account could earn you more, which could partially offset rising mortgage costs. Despite the recent rise, overall mortgage rates are still fairly low, while the appraised values of homes have been on the rise for the past several years. If this trend continues, the home you buy today could earn you more when the time comes to sell or take cash out in the future.

If you’re a first-time home buyer, 2017 is a great year to find your perfect home. Don’t let an increase in interest rates keep you from making a sound investment to build equity into your future. Talk to a Home Loan Expert to start your mortgage today!

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