For years, several homeowners were prevented from moving up because of negative equity which means that they owe more than what the house is worth. They were locked-in to their location because of their low home values. Now that the economy is improving and their home market value has increased, they don't want to move because of the rock bottom rate they have when they bought or refinanced last couple of years. In late 2012, the interest rate was 3.3%. Now that the interest rate is starting to head back up, they are hesitant to move.
John Moony, managing vice president of Guaranteed Rate, a national mortgage company based in the Chicago area, says that even a 1 percent increase in mortgage rates can make a big difference in a home owner’s decision-making process. He says a 1 percent increase in interest rates generally equates to a 10 percent reduction in purchasing power. In practical terms, that means a family looking to keep their mortgage payment below, say, $1,500 a month will need to lower the maximum price they can pay for a house from $300,000 to $270,000 if interest rates go up one percentage point.
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