Mortgage Rates Change Home Affordability

Payment is paramount in the home search because — unlike purchase price — it’s something to which homeowners must tend monthly. Irrespective of health, wealth, or family, mortgage payments are due.

Once I've helped buyer client make a budget, I have to be sure to keep tabs on it. The budget can be victimized by mortgage rates.

See, homes are more affordable today than at any time in recorded history, but it’s not because home prices are down. It’s because mortgage rates are. And every time mortgage rates change, your maximum purchase price changes, too.

Did you know that in In June 2011, mortgage rates changed every 3 hours, 23 minutes on average.

With mortgage rates changing as rapidly as they are, your home affordability can be short-lived. Consider the budget-busting impact of rising mortgage rates.

For every 1 percent rise in mortgage rates, a buyer's maximum purchase price falls 10.75%!!

For example, if a buyer has 20 percent to put down and sees a $300,000 home, today, he can borrow at 4.500% and pay $1,216 monthly. But if the buyer wants to wait for a price reduction and, 4 weeks later, he gets it — all the way to $285,000. He’s ecstatic. Until he talks to his lender and finds out mortgage rates are up 1 point.

That same home - selling for $15,000 less, now costs $1,295 to carry.  It's a $79.00 monthly increase and $28,440 extra payments over the life of the loan.

This is why it’s foolish to “time” the housing market.

Sure, Mr. Buyer, you may get that “great price”, but rising mortgage rates wipe out the savings (and then some).

So......the moral of the story is buy now while rates are low, inventory is high and prices are soft.  It just makes dollars and sense!