Greg King

Greg King

Realtor ® S.0070665.LLC Short Sales & Foreclosure Resource®, Zillow English
5550 Painted Mirage Rd. Ste 140 Las Vegas NV 89149
(702) 767-3454

How a Change in Mortgage Rate Impact Your Homebuying Budget

By G.King - April 26, 2021

How a Change in Mortgage Rate Impacts Your Homebuying Budget

 

Mortgage rates are on the rise this year, but they’re still deficient compared to the historical 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 to plan for and understand what you can afford. However, even a small increase in the mortgage rate can make a big difference when you need to stick to your budget.

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 mortgage rate change 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 maintain your budget.

In essence, it’s ideal for closing 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 meager, 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 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 long. Contact your local real estate professional today to start the home buying process while your purchasing power is still holding strong.

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