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Interest Rates and Purchasing Power

If you’re considering a home purchase, chances are you’ve discovered there are many factors, in addition to the price of the home, that come into play. With things like closing costs and home inspections, along with moving expenses and taxes all affecting your budget, it’s smart to use one factor to your advantage: the interest rate.  

Clearly, the interest rate you secure can greatly impact your monthly housing payments, but do you realize how it impacts your overall purchasing power? That purchasing power equates to the amount of home you can afford to buy with your available budget. As rates increase, the price of the house you can afford will decrease if you want to stay within a certain monthly payment budget.

For every one-half percent increase in interest rate your purchasing power may be decreased by 4 to 5 percent and for a full percent rate increase, you can see a drop in your purchasing power of up to 11 percent! Lower loan amounts will see a smaller percentage change.

Buyers have enjoyed what is considered a low interest rate for a while now, but that could be changing. So far this year, the average rate for a 30-year fixed mortgage has grown. It started at 3.95% at the beginning of January and was at 4.15% by month’s end. It’s currently around 4.5% and the general consensus is that rates will continue to rise. Some are predicting it will be at 5% by the end of the year.

While motivated buyers can always find a reason to “buy now” this issue is cause for those who may be wavering to consider expediting their purchase. By moving now, you’ll get more house for the same investment and the same monthly payment. It’s certainly worth serious consideration. The experienced agents at The Henry Group are here to help you with this and every issue that affects your next home purchase. Contact us today and learn more about what we can do for you.


Written by the Henry Group

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