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What the 'Fear Factor' Means for Your Home Purchase

NEW YORK ( BankingMyWay) -- Even as 30-year fixed mortgage rates rise, Americans want to buy new homes anyway -- and that's pushing up the value of homes across the country.

The 30-year fixed mortgage rate shot up more than 200 basis points last week, from 4.51% to 4.72%, according to the BankingMyWay Weekly Mortgage Rate Tracker. One-year, three-year and five-year adjustable-rate mortgages rose sharply as well.

But that's not stopping homebuyers from landing new properties.

That after the National Association of Realtors reports a big jump in existing-home sales, which rose 6.5% in July. All told, the rate of new home purchases was up 17.5% from July 2012 to July 2013.

It's also the 25th straight month of rising monthly U.S. home sales, the NAR reports.

The figures seem to be contradictory at first glance. After all, why would buyers jump into a mortgage market where interest rates are skyrocketing?

But as the NAR explains it, there could be a "fear factor" present, as homebuyers don't want to take the risk of rates rising even higher, thus making any home purchase more expensive.

Look at it this way: According to the BankingMyWay Mortgage Calculator, the total interest on a $200,000 loan at a rate of 4.5% would be $164,813.00 over 30 years.

But a 5% rate would drive that total interest rate cost up more than $186,50 over the same period, adding an extra $22,000 or so to the purchase of the home.

Smart buyers know this and are jumping in now before rates can go any higher, as the recent trend suggests.
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