How Interest Rates Impact Affordability

The Federal Reserve has been on a mission to dampen rising inflation by increasing borrowing interest rates. These increases are impacting borrower's affordability in their mortgage loans. The impact for each buyer will depend on their interest rate, home price, and down payment. However, all buyers in every price point will be under pressure with climbing rates and economic uncertainty.

Click here for current mortgage loan rates for a 30-year fixed loan.

Higher interest rates equate to two things: 1) higher mortgage payment 2) less buying power

The image below illustrates how even a minor quarter percentage point can increase the monthly mortgage payment by $70-75 (for a $500,000 30-year fixed loan). The quarter percentage increase may not seem like much incrementally, but you can see the big difference when it's a full percentage point (nearly $300 more per month). Keep in mind the interest rates don't include the taxes and insurance and the actual obligation will be higher.

That $300 a month could be anything to you: the ability to buy a larger or higher priced home in a neighborhood you want, daycare expenses, retirement savings, or rainy day funding.

To see the effects even further, let's look back at 2020 when interest rates were at their lowest. The chart below details the impact of rising mortgage rates on 30-yr mortgage payments with both a 10% and 20% down payment (excluding taxes and insurance).

If you've been thinking about waiting to see if the market cools off, the increase in interest rates may very well off-set any savings you would see in purchase price. We recommend reaching out to an experienced and local lender to discuss your best options. Call us at (208) 870-8292 or email at info@lysibishop.com to get connected with a real estate professional to get started.