• Home
    • Buyer Tips
    • Fed announces rate hike, mortgage rates already on the rise

    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.

    buying-power

    Trackback from your site.

    Leave a Reply

    About our blog

    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
    Visit my website
    Apply for a loan
    Mobile: (404) 310-3753
    Fax: (678) 680-5677

    Let me know how I can assist you with your North Metro Atlanta mortgage needs. I am here to help!

    Contact Us Now

    Any questions, comments, or feedback

    Disclaimer: By entering your information and clicking "Continue" you agree to our Terms of Use and Privacy Policy and that you may be contacted by phone, text message and email about your inquiry.