Honey, Interest Rates Shrunk the Loan

Yesterday I presented a chart demonstrating how the payment can change for each 0.125% difference in the mortgage interest rate. As rates change so does the loan amount a borrower can obtain. For example, if a borrower can handle a $1500/month mortgage payment (not including taxes and insurance) then at a 6.00% interest rate this translate into a $250,000 loan. So, as a borrower you can can work with your real estate agent to look for a loan in that price range.

However, if the rates were to rise over several weeks to 7.125% then at the $1500/month payment the borrower can only qualify for a $222,000 loan. This is pretty steep fall and the homes in that range can be quite different.

Looking ahead I do not believe interest rates will rise dramatically. However, it can change sufficiently for a particular borrower not be able to afford a home any longer. So, my advice for potential home buyers is to check with their lender from time to time just to make sure interest rates haven’t moved too much. This is especially important if it is taking a long time to find the right home.

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