Mortgage Monday: How Does a Rise in Interest Rates Impact Buying Power?

How does a rise in interest rates impact your buying power?

I have been asked if it’s a good time to buy now. I answer that now is the perfect time to buy. Lower home prices coupled with the lowest interest rates in 30 years makes it the perfect time to buy.

Let’s say, for example, that at an interest rate of 4.00% (4.119% APR) you could be approved for a home which cost $200,000. At an interest rate of 5.00% (5.13% APR) you would only qualify for a home that cost $177,867, which is a decrease in buying power of 12%. At an interest rate of 6.00% (6.142% APR), you would only qualify for a home that cost $159,257, which is a decrease in buying power of 25.5%!

When home sales start picking up,  you can expect interest rates to start rising as well. Do your home shopping as soon as you can to take advantage of your current increased buying power. Historically home prices have risen after a drop in value.

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