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How Interest Rates Affect Home Buying Power

When purchasing a home, did you know the mortgage interest rate you obtain can directly impact the loan amount for which you may qualify  That's right!  In fact, the higher the loan amount, the more an interest rate may affect your buying power.

But what exactly is buying power? Buying power is comprised of the total amount of money you have available each month for a mortgage payment. Any money you’ve saved for a down payment, the proceeds from the sale of your current home, if applicable, and the amount of money you’re qualified to borrow all impact your buying power as well. When you take all of this into account, you may find you’re able to purchase a larger home or a home in a more desirable neighborhood.

As interest rates have dropped to near-historic lows, it’s clear that now may be the right time to buy and sell a home. If you’ve been on the fence about purchasing a home, you probably want to act soon. You may find that you can afford a bigger, better home than you thought – while still making reasonable monthly payments.

While your interest rate should not be the only consideration when buying a home, a lower rate can result in a higher purchase price and loan amount for which you may be approved.

Here’s how a lower interest rate can mean more buying power for you:

Example 1:

 

 

 

In this scenario — for a similar monthly principal & interest payment —
the lower interest rate yields a difference in buying power of $25,000!

Example 2:

 

 

 

In this scenario — for a similar monthly principal & interest payment —
the lower interest rate yields a difference in buying power of $50,000!

If you are planning to purchase a home, be sure to understand the costs in addition to your principal and interest mortgage payment such as property taxes, insurance, maintenance, repairs, and utilities.  You can calcluate your monthly payments with our on-line calculator here, and if you need assistance, we're happy to help!  A local mortgage consultant can answer your questions about home financing and discuss how homeownership may fit into your overall financial goal.

 

Mortgage amounts are based on 30-year fixed rate conforming and jumbo conventional loans with a 20% down payment. Interest rates and annual percentage rates (APRs) are based on current market conditions, are for informational purposes only, are subject to change without notice and may be subject to pricing add-ons related to property type, loan amount, loan-to-value, credit score and other variables.

Examples are provided for educational and illustrative purposes only.  The payment amounts do not include homeowners insurance or property taxes, which must be paid in addition to your loan payment. Your actual payment may be higher. This is an illustration and does not reflect your actual loan information, cost or the exact interest rate for which you may qualify. Please contact us for current interest rates. Your loan’s interest rate will depend upon the specific characteristics of the loan transaction and your credit profile up to the time of closing. Estimated closing costs used in the APR calculation are assumed to be paid by the borrower at closing. If the closing costs are financed, the loan, APR and payment amounts will be higher. If the down payment is less than 20%, mortgage insurance may be required and could increase the monthly payment and APR. Speak with your mortgage consultant for more information regarding the content contained on this page.

 

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