Interest Rates Are Up, Meaning What Must Come Down?

According to a report issued last week from Freddie Mac, interest rates on a 30-year mortgage averaged 6.71 percent last week. One year ago the rates were at 5.3%.

On a $400,000 mortgage, that’s a difference in monthly payments of $362.55.

Perhaps as a result, the Mortgage Bankers Association also reported mortgage applications fell 4.4% from the week before.

This will likely have a big impact on the duplex and multifamily market. To offset the higher mortgage payment on a duplex purchase, the buyer will either need rents to increase, a bigger down payment or the purchase price to come down.

For example, if the rent in a duplex with two-bedroom units is currently $1500 each, they would need to increase to $1681.27 per unit to offset the higher mortgage payment. That’s an annual rent increase of 12%.

And if the duplex for sale is in St Paul, that may not be possible, in spite of the opportunity to appeal the 3% cap on annual rent increases.

So that leaves two options; a higher down payment or a lower purchase price.

Guess which one buyers are most likely to choose?