“How do interest rates affect my buying power?”

You are a busy person, so I will make this fast.

If you are planning to finance your home purchase:

For every 1% that interest rates increase, your buying power decreases by 10%.

Conversely, for every 1% interest rates decrease, your buying power increases by 10%.

For example:

Interest rates are at 4%, & your lender determines you are currently able to make payments on a $700,000 home.

You think about that home for a week. (Is the view just what you want, the trees-are they mature enough? etc)

Over that week, interest rates go up to 5%, now you have a heftier interest payment on the money you borrow, so those same monthly payments will now only get you a $630,000 home.

Conversely, if over that week, interest rates went down to 3%, you would now have the ability to buy a $770,000 home.

Your monthly payments are the same in each scenario.

Synopsis:

Interest rate 3% — you are able to borrow/buy a home at $770,000

Interest rate 4% — you are able to borrow/buy a home at $700,000

Interest rate 5% — you are able to borrow/buy a home at $630,000

Posted on November 2, 2011 at 7:51 pm
Jennings Doyle | Category: Uncategorized

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