Have you heard?  Interest rates are on the rise.

In early January, the average mortgage interest rate was 3.22% on a 30 year fixed rate mortgage.

Last week, the average mortgage interest rate was 4.67% on a 30 year fixed rate mortgage.

That is quite an increase!!!

Here are two examples of how that might -- and might not -- affect buyers.

Our first set of fictional buyers was planning in January to buy a $450,000 home in Rockingham County while putting 20% down as a downpayment.

Here's how things were looking in January with a 3.22% mortgage interest rate...

Here's how things are looking now with a 4.67% mortgage interest rate...

As you can see, these buyers will have to pay $300 more each month because of the increased mortgage interest rates -- but, they were originally qualified up to $600,000 so the $300/month increase is annoying and frustrating, but does not change their plans to buy a $450,000 home.

• Purchase Price = $350,000
• Down Payment = $35,000
• Loan Amount = $315,000
• Monthly Payment = $1,702

So, in theory, these buyers would have to pay $263 more each month because of the increased mortgage interest rates -- but, they are only qualified for a mortgage payment of up to $1,725.  Eek!  They are no longer qualified to buy a $350,000 home.

As such, here's how things really look for them if they are maxing out their $1,725 per month budget given these new mortgage interest rates...

As you can see, these buyers had to reduce their budget from looking at houses priced at $350,000 down to houses priced at $305,000.  That's quite an adjustment, especially when home prices are currently increasing by 10% per year.

All this is to say that some buyers will *definitely* be affected by these rising interest rates -- finding themselves no longer able to buy the home they hoped to buy, or needing to lower the price point of houses they will be considering.  At the same time, however, some buyers will still be able to afford to buy the same houses they had planned to buy -- though their monthly housing costs for having done so will certainly be increasing.

If, in our local market, most buyers were maxing out their home buying budget, and thus now have to buy less expensive homes, that could cause values to stop increasing, or even to start decreasing.  What is not clear is how many buyers in our local market were maxing out their home buying budget and how many had room to increase their monthly mortgage payment if needed.