You’ve seen the advertisements, news reports, posts on social media, “The feds are planning to increase rates, so you better buy a home now.” But, what does that REALLY mean and how does that affect your home purchase power?
So, let’s say that you qualify for a Principal & Interest (P&I) monthly payment of $1,200 (using only P & I to illustrate – taxes, homeowner’s insurance and mortgage insurance are not included).
Sales Price of $295,000
$1,200 per month
30-year fixed rate
20 percent down payment
Loan amount of $236,000
4.5% interest rate
So, what happens with a 1% increase in interest rate?
Here’s the bottom line! For every .5% (one-half) percent increase in interest rate your purchasing power may be decreased by 4 to 5 percent (the percentage is smaller for lower loan amounts).
For every 1 percent interest rate increase, your purchasing power may be decreased by 9 to 11 percent (the percentage is smaller for lower loan amounts).
Hope this helps as a rule of thumb for how it may affect how much you will qualify for when buying a home.