You probably instinctively realize that rising interest rates will affect home buyers. The interest rate you pay can make a big difference in the size of the home loan you will qualify for as well as the price of the home you’ll be able to buy. Mortgage brokers use the monthly mortgage payment to determine how much you can afford to pay. Of course the larger the payment, the harder it is to qualify.
Interest Rate And Its Effect On Affordability
A mortgage payment is comprised of several different costs. Some loans require that housing necessities are impounded, in other words you pay them along with your mortgage payment. These normally include taxes and insurance and in some cases, homeowner’s association dues. All mortgage payments include principal and interest as part of the total cost. Lenders use this payment to determine how much you can borrow for the home loan. Commonly, you can have 31-35% of your total monthly gross income as a loan payment. It follows that you want the principal portion of your home mortgage payment to be as high as it can be so you qualify for a more expensive home.
Risks Of Waiting To Buy
No one knows what might happen to interest rates in the future. Since we are currently seeing all-time low rates it stands to reason that they can come back down. However, the risk of not only rising mortgage rates but inflation can make a huge difference in your financial future. Rising interest rates will affect all forms of credit: your credit cards, car loans, student loans. They will also affect rental housing prices. As landlords see rising costs, they will naturally begin to charge more in rental rates to compensate. A home mortgage is the best hedge against inflation. By purchasing a home now, you lock in your monthly housing cost, which as we’ve already seen is the largest monthly expense for most families.
Interest rates are one of the biggest factors that affect your ability to finance a home purchase. Along with your credit score and employment history, the amount of interest you pay on the loan has a big impact on affordability. While you might not want to buy the most expensive home on the block, wouldn’t you like the option? Contact me today if you have any questions about interest rates and our real estate market. I would love to walk you through it.
