What Can You Afford in Today's Market?

Here’s how interest rates affect how much house you can afford.

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How much home can you afford with the present low interest rates? 

This week, I had a client interested in a property that was valued at $500,000, which she’s been approved for, and she’s putting 20% down. With the current interest rates at 2.875%, her monthly payment would be $2,285. A few years ago, that same property valued at the same price with a 4.5% interest rate would have been $2,652 per month, which is a difference of $367. As you can see, an increase in interest rates is the most crucial thing to consider when buying a home right now. 

"Locking in a lower interest rate is the best decision, even if you have to go a bit higher in price."

 

If we took this example a step further, and now the property is valued at $550,000 with that 2.875% interest rate, her monthly payment would be $2,513. Now let’s say she decided to wait a while; she didn’t want to get into a bidding war and drive up the price, so later the home is worth $450,000 but interest rates rose to 4.5%, her payment would climb to $2,387, which is still more expensive for her with the $50,000 drop in price than if she would have bought the house with a lower interest rate. In today’s market, locking in a lower interest rate is the best decision, even if you have to go a bit higher in price. 

If you have questions or comments about interest rates or anything else, feel free to leave them below or call us. We look forward to helping you.