How will your mortgage payments go up?
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Existing mortgages do not typically go up. The interest rate is set for the 15 or 30 year term of the mortgage. Only buyers who got ARM’s (adjustable rate mortgages) would eventually see a rate change, but very few people got ARMs in recent years because the fixed interest rate loans were so low across the board.
The increase in rates affects those trying to buy a home, as the higher interest can significantly increase the monthly payments. This in turn puts pressure on sale prices, because fewer buyers can afford the monthly payment when interest rates are higher.
A $400k mortgage at 3.5% has a monthly payment (interest & principal) of $1,796. At 7%, that same loan costs $2,661 per month. There are a lot fewer buyers for a $500k home (assuming 20% down) when the payments are almost $2,700 vs. when they were around $1,800. So a seller can wait longer to find a buyer, or can drop their price.
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