This year, we have witnessed mortgage rates slowly increasing but compared to the historical averages, the rates are still significantly low. If you are thinking about purchasing a home, you may be wondering how a change in mortgage rate affects your personal home buying budget. This year, rates have risen by approximately half a percentage point, which means that homebuyers will have a lower purchasing power.
If you are planning to purchase a home, you are probably already planning your monthly budget and what you will truly be able to afford. A change in mortgage rates will make a huge difference, so it is important to understand your budget to ensure your financial success in the future.
The National Association of Realtors (NAR) has shown how a change in mortgage rates will affect your purchasing power, in the graph below. The NAR is using $300,000 as an example of the median home price:
A key takeaway from this graphic is that when the mortgage rate increases, you can see that the loan amount will therefore decrease, to keep the monthly payment constant. In this scenario, a lower priced home might work better for you as mortgage rates continue to rise. This instance is how you will be able to maintain your budget. On the other hand, low mortgage rates will allow you the opportunity to borrow more money.
If you are interested in entering the housing market, it is important to remember that mortgage rates are still historically low and will only slightly increase as this year progresses. Low mortgage rates provide extremely favorable conditions for buyers. If you would like to buy a home this year, connect with a Seven Gables Advisor to learn how to make the most of your purchasing power.