You’ve seen the advertisements, news reports, and posts on social media:

“The feds are planning to increase rates, so you better buy a home now”

What does that REALLY mean and how does that affect your home purchase power?

Let’s look at the numbers and see how this really breaks down.

Let’s say that you qualify for a Principle & Interest (P&I) monthly payment of $1,200 (using only P & I to illustrate – taxes, homeowner’s insurance and mortgage insurance are not included to  compare apples to apples).

• 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

Now let’s look at what happens with a 1% increase in interest rate?

Same scenario — but the rate is now 5.5%

The maximum sales price decreases to $265,000. With 20% down payment, the loan amount is now $216,000 or a 10% decrease in purchasing power.
This chart shows you how a one-half percent interest rate increase affects a home buyer’s purchasing power.
Monthly payments have been rounded up or down by a few dollars. APR’s are not disclosed. Chart for illustration purposes only.

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).

If you are considering moving, you may be better off to look now than to wait until later.