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Rising Mortgage Rates Could Cost Some Homebuyers More Than $100,000 Over Lifetime of Loans
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Since the start of the year, mortgage rates have risen dramatically. The record-low rates of 2021 are gone, with rates above 5% becoming standard.
While a lower rate can make paying off a mortgage more affordable, it can be difficult to picture how much a higher rate can impact payments for new buyers. With that in mind, we used data collected from LendingTree users to put a dollar amount on how rising rates can affect the cost of a mortgage.
Specifically, we calculated the difference between average monthly mortgage payments on 30-year, fixed-rate loans in each state based on average APRs in January and April 2022.
We found rising APRs could potentially cost new borrowers across the U.S. hundreds of dollars a month — or more than $100,000 over the lifetime of the loans.
- 30-year, fixed-rate mortgage APRs have increased by an average of 1.46 percentage points across all 50 states since January. In January, the average APR across the 50 states was 3.79%. In April, it was 5.25%.
- Nationwide, rising APRs are causing new mortgage payments to increase by an average of $258.57 a month. To put that figure into perspective, that monthly increase amounts to an average of $3,102.82 in extra costs each year and an average of $93,084.60 in extra costs over the lifetime of a 30-year loan.
- Mortgage payments increased the least in Ohio, West Virginia and Kentucky. Owing to relatively low loan amounts, monthly payments increased by $199.55, $200.81 and $202.28, respectively. Though these increases are less than the national average, they add up to an average of $72,316.72 in extra costs over the 30-year lifetime of a mortgage.
- California, Washington and Massachusetts are the states that saw mortgage payments increase the most. These high-cost states saw monthly increases of $406.78, $357.38 and $337.23, respectively. Over 30 years, these extra monthly costs add up to an average of $132,167.83.
States where mortgage payments increased the least
No. 1: Ohio
- Average mortgage amount (2022): $241,517
- Average APR (January 2022): 3.94%
- Average APR (April 2022): 5.33%
- Monthly payment with January APR: $1,145.37
- Monthly payment with April APR: $1,344.91
- Difference between payments with January APR and April APR: $199.55
No. 2: West Virginia
- Average mortgage amount (2022): $207,300
- Average APR (January 2022): 3.86%
- Average APR (April 2022): 5.47%
- Monthly payment with January APR: $972.81
- Monthly payment with April APR: $1,173.63
- Difference between payments with January APR and April APR: $200.81
No. 3: Kentucky
- Average mortgage amount (2022): $224,562
- Average APR (January 2022): 3.91%
- Average APR (April 2022): 5.41%
- Monthly payment with January APR: $1,060.20
- Monthly payment with April APR: $1,262.48
- Difference between payments with January APR and April APR: $202.28
States where mortgage payments increased the most
No. 1: California
- Average mortgage amount (2022): $493,578
- Average APR (January 2022): 3.70%
- Average APR (April 2022): 5.09%
- Monthly payment with January APR: $2,271.05
- Monthly payment with April APR: $2,677.83
- Difference between payments with January APR and April APR: $406.78
No. 2: Washington
- Average mortgage amount (2022): $447,400
- Average APR (January 2022): 3.76%
- Average APR (April 2022): 5.11%
- Monthly payment with January APR: $2,075.37
- Monthly payment with April APR: $2,432.37
- Difference between payments with January APR and April APR: $357.38
No. 3: Massachusetts
- Average mortgage amount (2022): $407,532
- Average APR (January 2022): 3.69%
- Average APR (April 2022): 5.10%
- Monthly payment with January APR: $1,874.46
- Monthly payment with April APR: $2,211.69
- Difference between payments with January APR and April APR: $337.23
New homeowners could see even higher payments by year’s end
While rising rates won’t hurt most borrowers who currently have a fixed-rate mortgage and aren’t planning on selling, they could impact those who haven’t yet bought a home. For example, if APRs were to rise by another 50 basis points by year’s end, monthly mortgage payments across the country would increase by an average of $93.99, even if loan amounts stayed the same. This extra cost could make it even more difficult for some would-be homebuyers to navigate what will probably remain a pricey housing market.
Of course, there’s no guarantee that rates will rise that high by the time 2023 arrives. And even if they did, it wouldn’t necessarily be all bad news. After all, higher rates should result in less demand from homebuyers, which could, if nothing else, mean that those who decide to buy won’t be as likely to deal with hassles like incredibly tough home price negotiations and extremely limited housing inventory.
Regardless of what the future holds, it’s clear that rising rates have already made buying a home more expensive. Fortunately, that doesn’t mean homebuying is an impossible feat, and with proper planning, purchasing a house could still be a great option for many people.
3 tips for getting a lower mortgage APR
Though rates are quickly rising, there are still a few ways for borrowers to potentially get a lower APR on their mortgage. Here are three tips on how to do just that:
- Shop around for a mortgage before buying. Because different lenders will often offer different rates to the same borrowers, homebuyers can potentially secure a lower rate by shopping around for a mortgage before buying a house. In some instances, a borrower may be able to receive a rate that is dozens of basis points lower than what the first lender they saw offered them. This lower rate could result in tens of thousands of dollars in savings over the lifetime of a loan.
- Work on your credit. Because it’s used to gauge how likely a person is to repay their debt, a credit score is an important factor that lenders consider when determining what rate to offer a prospective homebuyer. Because of this, borrowers should work on making their credit score as good as possible before they apply for a mortgage. Not only can a higher score help a homebuyer get a lower rate, but it can also help them get approved for a loan in the first place.
- Consider a mortgage with a shorter term. Shorter-term loans often come with lower rates than their long-term counterparts. For example, borrowers with excellent credit can typically expect to receive a rate on a 15-year, fixed-rate mortgage that’s more than 50 basis points lower than what they can expect to receive on a 30-year, fixed mortgage. Though a shorter loan term will typically result in higher monthly payments, it will nonetheless result in less interest paid over the lifetime of a loan. This can be worth it for those who have extra cash and don’t mind a steeper housing payment.
Data in this study was generated from more than 570,000 users who received an offer for a 30-year, fixed-rate mortgage on the LendingTree platform from Jan. 1, 2022, through April 22, 2022.
To calculate monthly mortgage payments, LendingTree used the average mortgage amounts offered to users in each state in 2022 (through April 22), the average APRs offered to users in each state in January 2022 and the average APRs offered to users in each state in April 2022 (through the 22nd).
Monthly payment differences were found by subtracting a calculated monthly payment with an average APR for January from a calculated monthly payment with an average APR for April. To determine how much this difference would add up to yearly, the monthly difference was multiplied by 12. This yearly difference was then multiplied by 30 to determine how much more expensive a mortgage would be over its lifetime.