How Interest Rates Impact The Price of House You Can Afford

Freddie Mac’s last Primary Mortgage Market Survey reports that interest rates for a 30 year fixed rate mortgage are currently at 4.61%.  The interest rate that you lock when buying a home, not only impacts your monthly payment but also your purchasing power – or price of home you can purchase.

Purchasing power, is the amount of home that you can afford to buy.  As interest rates increase, the price of a house you can afford to buy will decrease – assuming you must stay within a monthly housing budget.

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

Each 1/4% increase in interest rates, decreases the value of home that you can afford by 2.5% ($10,000 in the example above).  Some experts are predicting that interest rates will be close to 5% a year from now.

Consider buying now to get the biggest purchase for your money!