What do rising interest rates mean to buyers?

Rising rates do mean higher monthly payments. But, how much higher? Often the increase isn't as significant as buyers fear. A quick calculation will give you an idea of the impact.

For instance, with a fixed loan of, say, $100,000, a quarter percent means roughly an additional $18 per month; half a percent is twice that amount, or about $36.

Gauging the impact of rising interest rates for adjustable rate mortgages (ARMs) is not quite as straightforward because the rate a borrower pays will fluctuate as interest rates go up and down over the life of the loan. For this reason, a buyer comparing ARMs with different lenders should look at the initial rate (often guaranteed for a year) as well as the cap, or maximum rate, that the loan could go to.

When rates are going up, it benefits the borrower to ask for a "rate lock," which is an assurance that the rate for the loan being applied for will not increase during the period in which the loan is being reviewed and approved.

For instance, if you secured a rate lock at 7.5% for a $100,000 loan, the payment would be $699.21. If you were not able to secure a rate lock and the interest rate increased to 8%, the payment increases to $733.76 (an increase of $34.55).

To give you an idea of how rates impact your payment, examine the following chart for a 30-year fixed-rate $100,000 loan:

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