Why Interest Rates Matter

Dated: March 18 2019

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Why Interest Rates Matter


Interest Rates influence your purchasing power.  In short, the lower your interest rate, the higher price you can afford to pay for the house.  

 

According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 4.09%, which is still very low in comparison to recent history!

 

The interest rate you secure when buying a house not only greatly impacts your monthly housing costs, but also impacts your purchasing power.

 

Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain monthly housing budget.

 

The chart below shows what impact rising interest rates would have if you planned to purchase a home within the national median price range, and planned to keep your principal and interest payments at or about $1,100 a month.

 

Buyers purchasing power

 

With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5%, (in this example, $6,250). Experts predict that mortgage rates will be closer to 5% by this time next year.

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CoreLogic predicts a 4.8% appreciation in home prices in the next 12 months. Freddie Mac predicts an increase of a full percentage point in interest rates.

Again, just because you can afford a more expense house doesn't mean you should necessarily buy it, but it a lower interest rate certainly gives you more flexibility when Setting Your Buying Critiera.

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Marco Murad

Off Market Specialist. Specialties: Buyer's Agent, Listing Agent, Relocation, Commercial R.E. I'm a real estate consultant who's made a career of an excellent track record of outstanding results an....

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