6% Mortgage Rates? Watch Your Payment Instead

This is Jon Reed with NextAdvisor, and the average 30-year mortgage rate and my taste in music have something in common: They’re both about the same as they were in 2008.

So that’s good news if you’re a pop-punk band living off streaming royalties, but bad news if you’re a homebuyer. Before last week’s mortgage rates, 2008 was the last time that the average was above 6%, according to Bankrate. (Bankrate and NextAdvisor are owned by the same parent company.)

I wrote about the historical nature of these high mortgage rates in June, and how back in the mid- to late 2000s, a rate of 6% was good. Today, the world is different. These high mortgage rates come after years of record lows, and buyers are used to seeing 3% and 4%. They also come as homes are more expensive than ever.

Of course, the rate for your home loan is just one part of a math formula. You need to look at how it actually affects your cold, hard cash, that is, your monthly payment. Fortunately, we have a calculator for that.

Consider, for example, a $400,000 house, which is about the national average. If you were shopping last year, when mortgage rates were around 3%, you’d be looking at monthly principal and interest – not including insurance or taxes – of about $1,350 on a 30-year loan with 20% down.

Fast-forward to today. Let’s say the house is still $400,000, but the mortgage rate is 6%. Your principal and interest are now more than $1,900. That’s about a 30% increase for a house that costs exactly the same. It’s just more to finance it.

That extra $550 a month hurts – a lot. That’s why the housing market has slowed down so abruptly. It’s why prices are starting to tip downward a bit. But if you’re in the market for a house, it may be something you have to contend with. Life doesn’t line up comfortably with the economy.

Experts have given us advice on how to handle these high rates. Here are a few things that might help:

Shop around for a mortgage. This is basic, and something you should always do. You have the ability and the right to get quotes from different lenders and see who gives you the best deal. It’s on you to make them compete. Look at the rate, but also keep an eye on fees and points – a lower rate may come with upfront costs you can’t afford.

Stay within your budget. The monthly payment is the most important thing, so make sure you can afford it. Every variable that goes into buying a house – the mortgage rate, the price, the fees, the insurance, the taxes – comes out as one simple cost you pay every month. Do you like the house at that monthly rate? Can you pay it, comfortably, every month? Take it.

Hunt for a bargain. With fewer people house hunting, you have fewer competitors for the homes that are on the market. That means you might be able to offer below the asking price or get other concessions from the seller. It also means homes are staying on the market long enough for you to find them. There might be a deal out there if you’re willing to settle for a house that’s good, if not perfect.

The important thing, no matter what happens next in the housing market, is to buy something you can afford. The future is difficult to predict. A fixed-rate mortgage payment isn’t.