Low Interest Rates vs. Purchasing Power

According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 3.92%, which is still near record lows in comparison to recent history!

The rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power. Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain monthly housing budget.

The chart below shows what impact rising rates would have if you planned to purchase a home within the national median price range, and planned to keep your principal and interest payments between $1,850-$1,900 a month.

With each quarter of a percent increase in rates, the value of the home you can afford decreases by 2.5% (in this example, $10,000). Experts predict that mortgage rates will be closer to 5% by this time next year.

Bottom Line of Interest Rates

Act now to get the most house for your hard-earned money; even with interest payments. When buying a home, you need to consider the interest rates of your mortgage payments, and not just the size of the mortgage itself.

 

 

 

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