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The housing market in many parts of the country is really hot. Home values have increased at levels never before seen. Interest rates have also increased, raising the borrowing costs for those looking to purchase a new home. The principal and interest payments have increased an alarming 14% in the last 12 months.  

Everyone recognized that interest rates would increase eventually from their lows in the mid-2% range (for 30 year fixed rate mortgages) seen at the beginning of 2021. But not a lot of experts believed rates would increase a full point. How has that impacted a mortgage payment/ Let’s take a look.

Conforming interest rates a year ago were at 2.50% for a 30 year fixed rate and excellent credit scores. Today, that same interest rate on a conforming loan has jumped to 3.50%. This increases the payments for new home buyers at the beginning of 2022.

Increases in Mortgage Payments
Month / Year Interest Rate Mortgage Balance Principal and Interest Increase in Payment
Jan 2021 2.50% $300,000 $1,185.36  
Jan 2022 3.50% $300,000 $1,347.13 $161.77 (from January 2021)
Jan 2021 2.50% $400,000 $1,580.48  
Jan 2022 3.50% $400,000 $1,796.18 $215.70 (from January 2021)
Jan 2021 2.50% $500,000 $1,975.60  
Jan 2022 3.50% $500,000 $2,245.22 $269.62 (from Jan 2021)

The increase in principal and interest payments equal to a 14% increase year over year. This does not include increases in other costs such as property taxes and homeowners insurance.

The challenges are many and it makes most potential new homeowners double check their ability to pay a higher payment this year.

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