You probably know that interest rates are historically and unbelievably low. What you may not know is how much the change in interest rates affects your buying power – the amount of house you can purchase without increasing your payment.
Let’s assume you want your mortgage payment to be $1,500 per month for principal and interest. Rates fluctuate daily, but at the current 4.125% for a 30-year fixed mortgage, you could purchase a home for roughly $386,000 with a 20% down payment. If the interest rates rise to 5%, you’re only able to purchase a $349,000 home for the same payment. Now, if the interest rates rise to a modest 6%, which is still considered historically low, your $1,500 per month payment will only get you a $312,000 house! That’s a big difference in purchasing power and keep in mind that, historically, rates above 6% were the norm.
The above example assumes a 20% down payment, but it’s important to know that there are options for only a 10% down payment on conventional loans and there are programs that allow for even less.
Being this low, the rates will inevitably go up at some point. Don’t look back on this time period as the time you wish you would’ve purchased your next home!
| Purchase Power By Monthly Payment and Interest Rate | |||||||
|---|---|---|---|---|---|---|---|
| $1,000 | $1,250 | $1,500 | $1,750 | $2,000 | $2,250 | $2,500 | |
| 4.125% | $257,918 | $322,398 | $386,877 | $451,357 | $515,836 | $580,316 | $644,796 |
| 4.50% | $246,701 | $308,377 | $370,052 | $431,728 | $493,403 | $555,078 | $616,754 |
| 5% | $232,852 | $291,065 | $349,278 | $407,491 | $465,704 | $523,917 | $582,130 |
| 5.50% | $220,152 | $275,190 | $330,228 | $385,266 | $440,304 | $495,342 | $550,381 |
| 6% | $208,490 | $260,612 | $312,734 | $364,857 | $416,979 | $469,101 | $521,224 |
| 6.50% | $197,764 | $247,204 | $296,645 | $346,086 | $395,527 | $444,968 | $494,409 |
| 7% | $187,884 | $234,856 | $281,827 | $328,798 | $375,769 | $422,740 | $469,711 |
| Amounts are based off of and include a 20% down payment | |||||||