Before you even begin searching for a home, you need to know the relationship between mortgage rates and buying power. Purchasing power is the cost of the home you’re interested in buying that’s within your financial means. Mortgage rates have a direct effect on the monthly payment you’ll make to own your home.
Mortgage payments are affected by interest rates, so when those interest rates rise, so does the monthly payment you lock into when shopping for a home. Since rates have been inching higher, it’s important to plan carefully because the rates could affect your buying power.
As of May 2022, the average 30-year fixed mortgage rate was a little more than 5%. Experts caution that the number could creep even higher depending on inflation and the economy. Compared to last summer, when rates were under 3%, this increase could have a huge difference when shopping for a home and mortgage.
To help better understand how interest rates affect your home mortgage, consider the following. If your budget allows for a monthly mortgage payment of about $2,200, you won’t be able to afford a $400,000 mortgage if the interest rate is higher than 5%. A 5% interest rate on $400,000 equates to a monthly payment of $2,147, but a 5.25% interest rate increases that monthly payment amount to $2,209.
If you’re ready to purchase a home, use the rising interest rates as a way to lock in rates now. That way you can stay ahead of rising rates before you need to re-evaluate your buying power. If you still have questions or concerns, reach out to a trusted real estate professional for more guidance.
Sources: NPR.org, Keepingcurrentmatters.com, Nytimes.com
We are ready to help you find the best possible mortgage solution for your situation. Contact Sheila Siegel at Synergy Financial Group today.
