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What Happens When Mortgage Interest Rates Increase?

By Ann White

How will you be affected when mortgage interest rates increase? That depends on your situation when the increase takes place. An increase in mortgage interest rates may require you take action (convert to a fixed rate mortgage, or buy your home now) if you feel that mortgage interest rates will continue to increase in the future. Here are the three possible situations in which you may find yourself:

You Have A Fixed Rate Mortgage

If you had the foresight to obtain a low interest, fixed rate mortgage when you bought your house, then when mortgage interest rates increase they will have no effect on you whatsoever. Your mortgage interest rates will remain the same throughout the term of your loan, as long as you make your payments in a timely manner. Your lender cannot raise the interest rate on your mortgage.

You Have An Adjustable Rate Mortgage

If you took out an adjustable rate mortgage when you purchased your home to take advantage of the lower rate, or to simply qualify for the loan, then the monthly payment on your loan will increase. Your lender will raise the interest rate that you pay on your loan when mortgage interest rates increase. This increase will take place in the next interest adjustment period as specified in your mortgage documents, though the interest rate percentage increase is usually limited each time it increases.

You Are Trying To Qualify For A Mortgage Loan

When mortgage interest rates increase before you have a mortgage in place, you will pay the higher mortgage interest rates on any mortgage you obtain. Since the monthly payment will be higher with the mortgage interest rate increase, you will need more income to qualify for a mortgage of the same dollar amount. Alternatively, you may only qualify for a smaller loan amount and need to come up with a bigger down payment or look at a less expensive home to buy.

Related posts:

1. Is It Legal For A Fixed Mortgage Rate To Increase?
2. What If I Decide Not To Lock In A Mortgage Rate and Rates Increase?
3. Can Current Interest Rates Affect My Borrowing Power?
4. Can I Take Advantage Of Low Mortgage Interest Rates With Bad Credit?
5. When Will Mortgage Rates Increase?