Personal Finance

What Rising Interest Rates Could Mean for Your Home

February 4, 2022

Interest rates are on the rise again. How do these higher rates affect homeowners?

If you’ve been keeping up with current events, you know that rising interest rates have been a big part of the news cycle. You may also be wondering what this means for your home. Will interest rate hikes affect your property value? If you intend to sell your home, do increased rates mean that you won’t get as much money for your house, or that it will languish on the market? 

These are common questions for homeowners. Due in large part to the pandemic, interest rates have been at historic lows for some time. As rates are predicted to increase again, many people are carefully monitoring the situation.  Here’s what rising interest rates could mean for your home.

For Buyers

In general, higher interest rates mean decreased buying power due to higher monthly loan payments.  A buyer who can afford to spend $500,000 on a home when interest rates are at 3% may only be able to spend $450,000 when rates are at 5%. The extra money must be put aside to cover the monthly interest. 

If home prices remain steady, buyers will have fewer options to choose from. Or they may get a smaller house for their money. Instead of looking for a 4 bedroom option, a buyer may decide to settle for a 3 bedroom home. 

For Sellers  

On the other end, sellers may find that there are fewer potential buyers at all price levels during periods of higher interest rates. Someone who hoped to list their home at $500,000 might have to cut the price to appeal to the same group of buyers. 

However, the rules of supply and demand still apply. You may be protected against a drop in property value if you have a desirable house in a tighter housing market. 

Another factor to consider: uncertainty can breed indecision. During a period of rising interest rates, your house may sit on the market for a longer time, leading to increased financial stress if you are depending on the income from a home sale to fund a medical procedure, a family member’s education, or other major investments. 

Additional Factors to Consider

Property Value

What effect do rising interest rates have on your property value? The short answer: it depends. If interest rates rise and nothing else changes, it could become more difficult to sell your house. However, if the economy grows, the dollar amount that people are willing to pay for your home may not decrease. It may even increase if your home is located in an area of high housing demand. 

Rush to Buy 

Another effect you may see when selling during a period of rising interest rates is an abundance of buyers eager to buy now before rates go up even more. This run on homes may or may not drive up the price, but in any case it can create a situation where you’ll have several offers to choose from. 

Just because there is a rush to buy, doesn’t mean that you should be in a rush to sell. It’s important to carefully consider all offers, financing, and other factors before you make your final decision. Keep in mind that when the market settles, you may be able to command a better price. 

Maintaining Perspective on Rising Interest Rates

During the recession of the early 1980s, there was a time when the rate for a 30 year mortgage was over 18%. Since then, interest rates have fallen steadily. In late 2020, rates dipped under 3%. 

Historically, the rate of change has remained fairly steady, so there isn’t any reason to panic over an increase. Interest rate fluctuation is simply part of the way that the housing market works.

Maintaining the Value of Your Home

The decision to sell your home can be a daunting one, even in a seller’s market. Truehold’s Sale-Leaseback solution makes the process simpler for you and your loved ones. We buy your home at its full, verified current value and close within 30 days. You can live in your home as long as you wish, simply paying the agreed-upon monthly rent. 

Taking advantage of our Sale-Leaseback allows you to free up funds that would otherwise be used to pay property tax, or fund routine repairs and maintenance. Fill out the form below or contact us at 314-353-9757 and a Truehold Advisor will get in touch to help you decide if our Sale-Leaseback is the right option for you.

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