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Don't Let Your Buying Power Slip Away.

posted on Friday, April 16, 2021 in Realtor News

How Higher Interest Rates Affect Your Buying Power

While mortgage interest rates remain near historic lows, they’ve started creeping up this year. As the economy continues to recover from the effects of the pandemic, experts are predicting that rates could continue to rise. So, what does this mean if you're planning to buy a home?

Higher Rates = Less Purchasing Power

As rates go up, the amount of home you can afford goes down. For every 1% increase in interest rates, your buying power decreases by about 10%. 

See how much difference even a small rate increase can make:

Monthly Payment (P&I) $1,500 $1,500 $1,500
Interest Rate 3.0% 3.5% 4.0%
Annual Percentage Rate (APR)* 3.1% 3.6% 4.11%
Loan Amount $356,000 $334,000 $314,160
Purchase Price** $445.000 $417,500 $392,700

Think of what that buying power could translate to — a better neighborhood or school district, a move-in-ready home that requires no renovations, a larger space for your growing family? An increase in rates could limit your options.

Higher Rates = More Money Spend on Interest

A higher interest rate also means you’ll spend more money on interest over the life of your loan, causing you to pay more for your home in the long run.

Bottom line?

If you’re ready to buy a home, don’t wait until rates climb even higher. Get more for your money by locking in a low rate! Contact a Mortgage Banker today!  

*Annual percentage rate (APR) is based on a 1% origination fee and $1,000 in other fees. For example only. Monthly payment reflects principal and interest only. Actual program rates, terms, and conditions are subject to change at any time and may vary based on the borrower’s credit history. This is not a commitment to lend. Not all borrowers will qualify.

**The following loan scenario is for example purposes only: If a borrower with a 680 FICO score and 33% debt-to-income (DTI) ratio purchases a $350,000 home, provides a 20% down payment (loan amount $280,000), and obtains a 30-year fixed-rate mortgage with an interest rate of 3.5% (assumed APR of 3.61%*), the repayment terms would include a monthly principal and interest payment of $1,257. Does not include applicable taxes and insurance. The actual obligation will be greater. All loans are subject to credit and property approval. Certain restrictions may apply.


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