How a Change in Mortgage Rate Impacts Your Homebuying Budget
Mortgage rates are on the rise this year, but they’re still incredibly low compared to the historical average. However, anytime there’s a change in the mortgage rate, it affects what you can afford to borrow. As Sam Khater, Chief Economist at Freddie Mac, shares:
“Since January, mortgage rates have increased half a percentage point from historic lows and home prices have risen, leaving potential homebuyers with less purchasing power.” (See graph below):
Know Your Budget First
When buying a home, it’s important to determine a monthly budget to plan for and understand what you can afford. However, even a small increase in the mortgage rate can make a big difference when you need to stick to your budget.
According to the National Association of Realtors (NAR), today, the median existing-home price is $313,000. Using $300,000 as a simple number close to the median price. Below are examples of how a mortgage rate change impacts your monthly principal and interest payments.
Your Purchasing Power
If, for example, you’re getting ready to buy a home and know your budget allows for a monthly payment of $1200-1250 (marked in gray on the table above). Unfortunately, every time the mortgage rate increases, the loan amount will decrease to keep your monthly cost in range. This means you may have to look for lower-priced homes as mortgage rates go up to keep you on budget.
In essence, it’s ideal for closing on a home loan when mortgage rates are low, so you can afford to borrow more money. This gives you more purchasing power when you buy a home. Mark Fleming, Chief Economist at First American, explains:
“Monthly payments have remained manageable despite soaring home prices because of low mortgage rates. In fact, monthly payments remain below the $1,250 to $1,260 range.
Although they remain low, mortgage rates have begun to increase and are expected to rise further later in the year. Thus, affordability will test buyer demand in the months ahead and likely help slow the pace of price growth.”
Today’s mortgage rates are still very low, but experts project they’ll continue to rise modestly this year. As a result, every moment counts for homebuyers who want to secure the lowest mortgage rate they can to afford the home of their dreams.
Thanks to low mortgage rates, the spring housing market’s in bloom for buyers – but these favorable conditions may not last long. Let’s connect today to start the home buying process while your purchasing power is still holding strong.
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