How a Change in Mortgage Rates Impacts Your Homebuying Budget

Dated: March 30 2021

Views: 43

How a Change in Mortgage Rate Impacts Your Homebuying Budget

How a Change in Mortgage Rate Impacts Your Homebuying Budget | MyKCM

Mortgage rates are on the rise this year, but they’re still incredibly low compared to the historic average. However, anytime there’s a change in the mortgage rate, it affects what you can afford to borrow when you’re buying a home. As Sam Khater, Chief Economist at Freddie Macshares:

Since January, mortgage rates have increased half a percentage point from historic lows and home prices have risen, leaving potential homebuyers with less purchasing power.” (See graph below):

How a Change in Mortgage Rate Impacts Your Homebuying Budget | MyKCMWhen buying a home, it’s important to determine a monthly budget so you can plan for and understand what you can afford. However, when you need to stick to your budget, even a small increase in the mortgage rate can make a big difference.

According to the National Association of Realtors (NAR), today, the median existing-home price is $313,000. Using $300,000 as a simple number close to the median price, here’s an example of how a change in mortgage rate impacts your monthly principal and interest payments on a home.How a Change in Mortgage Rate Impacts Your Homebuying Budget | MyKCMIf, for example, you’re getting ready to buy a home and know your budget allows for a monthly payment of $1200-1250 (marked in gray on the table above), every time the mortgage rate increases, the loan amount has to decrease to keep your monthly cost in range. This means you may have to look for lower-priced homes as mortgage rates go up if you want to be able to maintain your budget.

In essence, it’s ideal to close on a home loan when mortgage rates are low, so you can afford to borrow more money. This gives you more purchasing power when you buy a home. Mark Fleming, Chief Economist at First Americanexplains:

“Monthly payments have remained manageable despite soaring home prices because of low mortgage rates. In fact, monthly payments remain below the $1,250 to $1,260 range that we saw in both fall 2018 and spring 2019, but they are on track to hit that level this spring. 

Although they remain low, mortgage rates have begun to increase and are expected to rise further later in the year, thus affordability will test buyer demand in the months ahead and likely help slow the pace of price growth.”

Today’s mortgage rates are still very low, but experts project they’ll continue to rise modestly this year. As a result, every moment counts for homebuyers who want to secure the lowest mortgage rate they can in order to be able to afford the home of their dreams.

Bottom Line

Thanks to low mortgage rates, the spring housing market's in bloom for buyers – but these favorable conditions may not last for long. Let’s connect today to start the homebuying process while your purchasing power is still holding strong.

Blog author image

Kelly Rosvold

Kelly has lived throughout the South Bay, Westside, and Los Angeles area for more than two decades, with 16 years of that residence in beautiful Hermosa Beach.  As a homebuyer and home seller, she di....

Latest Blog Posts

Don’t Wait for a Lower Mortgage Rate ~ It Could Cost You…

Don’t Wait for a Lower Mortgage Rate – It Could Cost YouToday’s housing market is truly one for the record books. Over the past year, we’ve seen the lowest mortgage rates in

Read More

9 Tips for Buying and Selling Your Home at the Same Time

9 Tips for Buying and Selling Your Home at the Same TimeSelling your home when you still need to shop for a new one can feel daunting to even the most seasoned homeowner––especially when

Read More

~ Are Houses Less Affordable Than They Were in Past Decades? ~

Are Houses Less Affordable Than They Were in Past Decades?There are many headlines about how housing affordability is declining. The headlines are correct: it’s less affordable to purchase a

Read More

With Rents on the Rise, Is Now the Time to Buy?

With Rents on the Rise – Is Now the Time To Buy?According to recent data from realtor.com, median rental prices have reached their highest point ever recorded in many areas

Read More