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    Fed announces rate hike, mortgage rates already on the rise

    The Federal Reserve announced it would raise short-term interest rates a quarter-percentage point and signaled it could lift them at a slightly more aggressive pace in coming years. Mortgage Rates immediately increased after this announcement. Additional fed rate increases throughout the year could push mortgage interest rates as high as 5% by year’s end.

    How do rising mortgage rates affect your purchase power?

    Buyers need to know what it really means when mortgage rates are rising. Purchase Power is the price of a home you can afford and is directly impacted by current mortgage rate when your purchase. Here is an example to explain…

    If you qualify for a maximum monthly payment of $1,200 and interest rates are at 4.5%, then you would have the Purchase Power to buy a home up to $240,000.

    Sales Price of $240,000
    4.5% interest rate
    $1,196 per month
    30-year fixed rate
    20 percent down payment
    Loan amount of $192,000

    What happens with a 1% increase in interest rate?

    Same scenario but the interest rate is now 5.5%, then you would have the Purchase Power to buy a home up to $217,500.

    Sales Price of $217,500
    5.5% interest rate
    $1,196 per month
    30-year fixed rate
    20 percent down payment
    Loan amount of $174,000

    After mortgage rates rise 1%, your purchasing power is reduced by 9.4%. This means you would lose $22,500 in purchasing power and have to find a home that costs $22,500 less than if you had purchased when rates were 1% lower.

    Here is a graphic illustrating the price of home you can afford as mortgage rates change.

    Bottom Line: For every 0.5% increase in interest rate your purchasing power may be decreased by 4 to 5 percent. For every 1.0% interest rate increase, your purchasing power may be decreased by 9 to 11 percent. Note: the percentage is smaller for lower loan amounts and higher for larger loan amounts.

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    Our agents write often to give you the latest insights on owning a home or property in the North Metro Atlanta area.

    Cheryl Cloud

    Cheryl Cloud NMLS# 545242


    Senior Mortgage Originator
    BankSouth Mortgage
    175 Townpark Drive, Ste 125
    Kennesaw, GA 30144
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