Purchase Price vs. Interest Rates
Are you considering buying a new home this next year? If so, you need to keep in mind how interest rates impact your monthly mortgage payment and buying power in addition to purchase price.
Since the election on November 8th, interest rates have increased by about 50 basis points (.5%) and Fed is expected to announce a rate hike after their December 14th meeting. Although the Fed rate does not control interest rates directly, they do tend to move in the same direction as the federal funds rate.
A rate increase of 100 basis points (1%) will impact your buying power by about five percent. Consider the following scenario... You get a loan for $250,000 for the purchase of your new home. Your estimated monthly P&I payment at a 4% interest rate is $874.85 and at 5% is $924.05. A monthly P&I at a 5% interest rate on a $237,500 loan is $877.85.
In this scenario a 100 basis point rate change on your $250,000 loan amount increased your estimated monthly P&I payment by $49.20 or decreased your buying power by $12,500.