How Mortgage Rates Affect Buying Power

Mortgage rates play a major role in determining how much home you can afford. Even a small change in interest rates can significantly impact your buying power.

When mortgage rates are low, your monthly payment is lower for the same loan amount. This allows you to qualify for a higher-priced home while staying within your budget. On the other hand, when rates increase, a larger portion of your payment goes toward interest instead of the loan principal, reducing the amount you can borrow.

For example, if you are comfortable with a fixed monthly mortgage payment, a lower interest rate could allow you to afford a more expensive home. If rates rise, that same monthly budget may only qualify you for a smaller loan. Over time, higher rates also mean paying more in total interest throughout the life of the loan.

Higher mortgage rates can:

• Reduce the number of homes within your price range

• Increase your total loan cost over time

• Slow down buyer demand in some markets

Lower mortgage rates can:

• Improve affordability

• Increase purchasing power

• Create stronger competition among buyers