How a Change in Mortgage Rate Impacts Your Homebuying Budget
Mortgage rates are on the rise this year, but they’re still incredibly low compared to the historic 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 Mac, shares:
Search Newest Homes for Sale in Rhode Island
“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):
When buying a home, it’s important to determine a monthly budget so you can plan for and understand what you can afford. However, when you need to stick to your budget, even a small increase in the mortgage rate can make a big difference.
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 change in mortgage rate impacts your monthly principal and interest payments on a home.If, 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 be able to maintain your budget.
In essence, it’s ideal to close 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 American, explains:
Thinking of Selling?
Find Your Home Value NOW!
“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 very low, 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 in order to be able to afford the home of their dreams.
Thanks to low mortgage rates, the spring housing market's in bloom for buyers – but these favorable conditions may not last for long. Let’s connect today to start the homebuying process while your purchasing power is still holding strong.
The Perrino Team Specializes in helping home buyers in Rhode Island find and buy homes they love. From first time buyers just thinking about where to begin, to seasoned investors buying and selling several houses a year, and all the homeowners ready to move up or downsize in between, The Perrino Team has the experience and expertise to help you find and buy a home you’ll love.
Call Us at 401-206-8907 or Email email@example.com
We’ll listen, it’s always confidential, and we’ll work with you!
Just Getting Started with the Home Buying Process?
Our Guide to Buying a House in Rhode Island is a great resource for our first time buyers to learn what to expect throughout the home buying process. It goes over the basics from financing and mortgage options, to finding a home and tips for a successful home search, the offer process, and through the contract process to closing. It is a great place to start your journey to home ownership. Tap the link above to read our full Guide to Buying a House or tap the button below to reach out to us with anything we can help you with.
We LOVE helping our clients find and buy homes they love.