How Do Interest Rates Affect My Purchase Power?
Nothing affects a home’s affordability more than interest rates. After all, we live with the monthly payment, not the amount of the loan. The higher your mortgage rate is, the higher your monthly payments are going to be as a result. Purchase power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. For instance, as rates increase, the price of the house you can afford to buy will decrease if you plan to stay within a certain monthly housing budget.
The chart below shows the impact that rising interest rates would have if you planned to purchase a home within the national median price range while keeping your principal and interest payments between $1,850-$1,900 a month.
Buyers Purchasing Power
| 4.75 | $2,086 | $2,034 | $1,982 | $1,930 | $1,878 |
|---|---|---|---|---|---|
| 4.50 | $2,026 | $1,976 | $1,926 | $1,874 | $1,824 |
| 4.25 | $1,968 | $1,919 | $1,869 | $1,820 | $1,771 |
| 4.00 | $1,910 | $1,862 | $1,814 | $766 | $1,719 |
| 3.75 | $1,852 | $1,806 | $1,760 | $1,714 | $1,667 |
| $400,000 | $390,000 | $380,000 | $370,000 | $360,000 | |
| -2.5% | -5% | -7.5% | -10% |
With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% as a result (in this example, $10,000).
Act Now! Rates are at historical lows to help make the home you want accessible.
Principal as well as interest payments are rounded to the nearest dollar amount. The information shown above is for demonstrative purposes only and does not include any additional fees. Like property tax, insurance, mortgage insurance, or HOA dues, for example. This is an advertisement and not a guarantee of lending.
