Interest Rates Changing? See What The Does to Your Housing Budget

Dated: April 6 2021

Views: 14

How a Change in Mortgage Rate Impacts Your Homebuying Budget

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 historic average. However, anytime there’s a change in the mortgage rate, it affects what you can afford to borrow when you’re buying a home. As Sam Khater, Chief Economist at Freddie Macshares:

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):

How a Change in Mortgage Rate Impacts Your Homebuying Budget | Keeping Current MattersWhen buying a home, it’s important to determine a monthly budget so you can plan for and understand what you can afford. However, when you need to stick to your budget, even a small increase in the mortgage rate can make a big difference.

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, here’s an example of how a change in mortgage rate impacts your monthly principal and interest payments on a home.How a Change in Mortgage Rate Impacts Your Homebuying Budget | Keeping Current MattersIf, 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), every time the mortgage rate increases, the loan amount has to decrease to keep your monthly cost in range. This means you may have to look for lower-priced homes as mortgage rates go up if you want to be able to maintain your budget.

In essence, it’s ideal to close 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 Americanexplains:

“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 that we saw in both fall 2018 and spring 2019, but they are on track to hit that level this spring.

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 in order to be able to afford the home of their dreams.

Bottom Line

Thanks to low mortgage rates, the spring housing market’s in bloom for buyers – but these favorable conditions may not last for long. Contact your local real estate professional today to start the homebuying process while your purchasing power is still holding strong.

Blog author image

Todd P Smith

Todd P Smith is a residential real estate Broker Associate with eXp REALTY serving the greater Austin, Texas metropolitan area. Growing up as the son of a Broker, Todd cultivated his passion for helpi....

Latest Blog Posts

Is Home Ownership Really Worth It?

First Time Home Buyers, For Buyers, Rent vs. BuyHomeownership Is Full of Financial BenefitsA Fannie Mae survey recently revealed some of the most highly-rated benefits of

Read More

It's Tempting To Sell Your Own Home, But ...

For Sellers, FSBOs, Pricing, Selling MythsDon’t Sell on Your Own Just Because It’s a Sellers’ MarketIn a sellers’ market, some homeowners might be tempted

Read More

How Has The Past Year Altered The American Dream of Home Ownership

Buying Myths, Demographics, First Time Home Buyers, For Buyers, MillennialsIs Homeownership Still Considered Part of the American Dream?Since the birth of our nation,

Read More

The US Government Wants To Help You Buy A Home This Year!

Down Payments, First Time Home Buyers, For Buyers, Move-Up BuyersYour Tax Refund and Stimulus Savings May Help You Achieve Homeownership This YearIf you’re planning to buy a

Read More