When Jennifer and Mike Babich closed in March on the purchase of their home in Freeport, they barely qualified for the mortgage.
Luckily, their interest rate was locked in at a staggeringly low 3.5 percent, said Jennifer Babich.
If the Babiches were still in the market today, that home would be out of their reach, now that the average interest rate is nearly a full percentage point higher.
A sizable boost in the average interest rate for a 30-year, fixed-rate mortgage in the Northeast could have a chilling effect on Maine’s recovering housing market, said real estate experts.
So far, the increase has driven Maine home buyers to two extremes, with some pulling out of the market and others jumping into it, said brokers and agents.
Nationally, the average mortgage rate increased from 3.93 percent on June 20 to 4.46 percent on Thursday, as reported by the mortgage buyer Freddie Mac. It was the biggest one-week increase in two years, pushing the rate a percentage point higher than it had been a month earlier.
Some analysts attributed the surge to an announcement by the Federal Reserve that it might scale back on buying bonds later this year. That likely would boost long-term interest rates on borrowing.
The Northeast region’s average interest rate, as calculated by Freddie Mac, had been rising steadily since early May before jumping from 3.95 percent on June 20 to 4.45 percent on Thursday.
On a $200,000 home purchased with 10 percent down, that 0.5-point increase would boost the monthly mortgage payment from $854 to $907, not including property taxes or private mortgage insurance.
The total interest paid over the full term of the loan would increase from $127,500 to $146,410.
For some buyers, it’s enough to make an affordable home suddenly seem unaffordable.
Many first-time buyers are getting nervous about the higher cost of financing a home, said real estate experts, while seasoned buyers have been more likely to see the rate increase as a reason to buy now, before rates go up even more.
Chelsea Locke, co-owner of Upscale Group Real Estate Brokerage in Portland, said her clients are split 75 percent to 25 percent in favor of backing away from their house-hunting because of the increase.
“It has been a really tough week and a half in real estate,” Locke said. “I think everyone’s kind of in a weird place right now.”
The situation is especially bad for buyers who just signed contracts but hadn’t locked in the previous rate when the higher numbers came out, she said.
The typical purchase contract allows a buyer to back out if the loan is no longer affordable, Locke said, but that makes the buyer start over to find a home.
The boost in mortgage rates also is having a dual effect on homeowners who are looking to refinance their loans, said Richard Morin, a mortgage banker.
“It caused a flurry of phone calls and activity in both directions,” said Morin, of Consumers First Mortgage in Kennebunk, who is president of the Mortgage Bankers Association of Maine.
Some callers wanted to expedite the refinancing of their loans before rates went up more, he said, while others began to rethink whether refinancing made financial sense anymore.
Thomas Ranello, who owns Keller Williams Realty in Portland, noted that mortgage rates are still close to historic lows so it’s a great time to buy.
But, he said, some would-be buyers in the Portland area have gotten fatigued because of the severe shortage of reasonably priced homes on the market.
“People are frustrated because there’s nothing out there for them to buy,” he said.
The availability of homes for sale has not been a problem in other parts of the state, said Angelia Levesque, an agent for RE/MAX Advantage Realty Group in Bangor.
Levesque said her business actually has increased since the mortgage rate jumped.
“In the last couple of weeks it has really started to pick up,” she said.
Maine’s real estate market has been rebounding from a long slump in recent months, with increases in home sales and median price.
The Maine Association of Realtors says much of the recovery has been driven by first-time buyers, the group most at risk of falling out of the market because of interest-rate increases.
There’s still a good chance that this week’s big rate increase was a fluke, Ranello said. If so, it should have little impact on the market overall.
Buyers will have a better idea of what to expect on Thursday, when the region’s average mortgage rate will be updated by Freddie Mac.
“I don’t think it’s the end of the world,” Ranello said. “It’s just a wake-up call. I hope.”
J. Craig Anderson can be contacted at 791-6390 or at: firstname.lastname@example.org. Twitter: @jcraiganderson