Community News

Being a Realtor and former banker, interest rates are something I continue to focus on.  The Federal Reserve recently raised its key interest rate after keeping it low for years.  This had a very direct effect on the short-term Prime Rate.  Mortgage rates are long-term in nature and are usually slower to react to short-term changes.  The main concern with raising interest rates is affordability.  As most people in the area know, Bozeman is a relatively expensive place to live.  However, rates are still near all-time lows.  Now is a great time to buy; a low long-term fix rate can be locked in. Here is an example regarding affordability: 

• Bozeman Area Median Home Price $405,000
• Approximate Principal and Interest payments based on a 30-year term at 4.25% = $1,995/month
• Approximate Principal and Interest payments based on a 30-year term at 5.25% = $2,335/month
• The difference is about $340/month

If you wanted to keep your payment at the original amount of $1995/month in the above example, then you would only be able to afford approximately $361,000 vs. $405,000 for your home purchase with a 1% increase in rates to 5.25%. 

Most of my associates have been expecting a raising rate environment over the past few years.  Now, it’s upon us.  My opinion is that interest rates will not necessarily jump instantaneously, but rather slowly.  That’s not to say it couldn’t happen quickly.  I think we will see interest rates slowly erode affordability over time. 

*Source SWMT MLS 12/31/15 Single Family Homes.

**Calculations do not include taxes, insurance, HOA, Rid/Sid, etc.

***Calculations based on no money down.

****All calculations and figures are estimates.