Here’s a tidbit most folks probably do not know . . . an easy to remember “Rule of Thumb” that says When mortgage interest rates rise by 1 percentage point buyers lose 10% of their purchasing power.
Conversely, when interest rates drop by 1 point a buyer gains purchasing power. However, given that today’s mortgage interest rates are the lowest in history I think it is safe to assume that rates are only going to rise in coming months & years. Certainly anyone who wants to buy a home will benefit by moving forward and locking in an interest rate near the current low rates instead of waiting for inevitable rate increases.
Case in point:
If a buyer can comfortably afford a mortgage payment of (about) $1,000 per month, in today’s market with a 4.5% loan they can carry a $200,000 mortgage. Assuming a 20% down payment this translates into a $250,000 home. If one waits until interest rates rise to 6.5% but wants to keep the mortgage payment roughly the same, the loan amount would drop to $160,000 – so with the same $50,000 down payment the home purchase price would need to be $210,000 or less. At 8.5% the affordable mortgage amount plummets to about $130,000.
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