Lately I have had people asking me about home prices and interest rates…how much impact does interest rate actually have on the price home you can afford to buy? Does it make sense to wait and see if prices come down more? What will happen if you wait and interest rates go up?

So…I pulled some information to compare. The charts below show that the higher your price range the bigger the impact of higher interest rates. 

For ease of comparison I did a range between 5.0% and 6.5% by 0.5% increments for all the examples below. As buyers in the lower price ranges are more likely to use a 3.5% down payment with FHA financing, buyers in the mid range may use 5% down conventional financing if available and buyers in the upper price ranges are more likely to use 20% down conventional financing I used that criteria in the three examples below. Note that while down payment amount obviously makes a difference in your monthly payment, it does not affect the impact of interest rate changes when other factors are constant.

As you likely are aware, interest rates are in a continuous state of flux and your rate is also closely tied to your credit score. Last Friday conventional rates were in the 5.125%-5.625% range…FHA rates were in the 5.5%-6.0% range…who knows what they will be this week!

Most sources say interest rates are more likely to go up than down…and that the combination of low interest rates and low home prices makes this "the buying opportunity of our lifetime".

If you are planning to pay about $860 a month, you could buy a $130,000 house at 5.0% interest. At an interest rate of 6.5% you could buy a $114,000 house for about the same monthly payment…a difference of $16,000 in home price.Payments-100k

If you plan to make payments of about $1,456 per month you could buy a $217,000 house at 5.0% interest. If rates increase to 6.5% you could buy a $192,000 house with the same monthly payments…a difference of $25,000. Payments-150k

The biggest difference is realized in higher price ranges. If you are prepared to spend about $2,285 per month you could buy a $417,000 house at 5.0% interest. If rates increase to 6.5% the house you can buy for the same monthly payment drops to $367,000…a difference of $50,000!

Payments-250k   

NOTE: monthly payments in the examples above are for a house; if you are purchasing a condo or townhome, association fees must also be included in calculating monthly maximum payments for mortgage financing

Sharlene Hensrud, RE/MAX ResultsEmailHomesMSP.com

RELATED POSTS

  • Credit reports and mortgage loans
  • Getting a mortgage…
  • Condo vs Townhome vs House
  • No Dogs Allowed…about CIC association restrictions
  • About Sharlene Hensrud

    I love what I do! Highly insightful, analytical and creative, there is nothing I love more than helping you find the right solution for your real estate transition. My mission is to serve my clients with honesty and integrity, exceeding their expectations in service and support… and to help others by donating a portion of every transaction to Habitat for Humanity.

    Related Posts

    Mortgage rates

    Mortgage rates are staying low for now – if you had asked me about rates 3 months ago and said that you wanted a 30 yr fixed rate at 4%, I might have laughed!  However, rates have been hovering around 4% for conventional loans and even as low as 3.75% for FHA loans.  All of this depends.

    Read More

    The value of a good credit score.

    A good credit score has always been important, but today it’s more valuable than ever. In the past, if you were getting a mainstream conforming conventional mortgage (not sub-prime), the structure was such that you were either approved or declined.  If you just barely passed the credit standards, you paid the same interest rate as.

    Read More

    Fed leaves rates alone – this time

    The Federal Reserve met this week and decided not to raise rates this time.  Their message after the meeting was that the economy continues to expand moderately and inflation is below the Fed's 2% target range. The Fed did leave many with the impression that they will raise rates in December – however it will.

    Read More
    Sort by:   newest | oldest | most voted
    Prada Handbags
    Guest

    I love the idea of a window-like mural. When we finished our basement we put beach scenes in the window wells (poly-coated) with dyed recycled tire “gravel/sand” on the bottom.Anyhow!
    Our store offers you all kinds of favourite products like Prada Handbags and Prada Handbags 2010 , Mens Prada Sunglasses with high quality, fashion style and competitive price.

    wpDiscuz