Buying a home? How rising mortgage rates might keep you there awhile

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StraighTalkAboutMortgages broker Tom Vanderwell makes an interesting point in a video recently posted on his website.

He recently asked a customer planning to move in three to five years this question: "If, three to five years from now, mortgage rates are 7, 8, or 9%, will you still move?"

Here's why it matters: let's say you buy a house now for $250,000, and put down $50,000. With a mortgage at 5%, your monthly payment will be $1097.75.

But let's say you decide that you want to move to another $250,000 house five years from now (i.e. you switched jobs), after inflationary concerns and the end of artificially low rates have driven interest rates higher. Let's say that in five years, rates are up to 8%. All of a sudden, your mortgage payment rises to $1467.53 -- your mortgage expense has risen 33%, even though all you did was trade one $250,000 home for another $250,000 home.

What can you do to hedge against this problem?

Probably nothing. But consumers (and policymakers) should realize that if mortgage rates rise dramatically, people could end up "stuck" in their homes: not because they're underwater or can't find a buyer, but because the ultra-low fixed rates people are securing now make selling a bad idea because it will mean the end of that mortgage.

Of course, if conventional mortgages were assumable (i.e. you could convey the interest rate you have onto the new buyer), this wouldn't matter. But that would be way too easy, and the result is that selling a home in three to five years to buy a new one might be a losing proposition if interest rates rise to more normal levels.
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