Mortgage interest rates have been on the rise since the beginning of 2021, but are still very low as compared to pre-pandemic rates. When there is a change in mortgage rates, it can have an impact on your home buying budget.
Since January, mortgage rates have increased by half a percentage point and home prices have also risen with increased demand. This leaves home buyers with less buying power according to the Chief Economist at Freddie Mac.
Before purchasing a home and before applying for a mortgage, it is a good idea for every buyer to go over their personal finances with a fine tooth comb to arrive at a monthly mortgage payment they know they can comfortably afford. After going over your monthly expenses and taking out your current housing payment, you can then determine how much of your left over income you are comfortable putting towards a home payment, utilities, etc. Tip: many people leave out budgeting for the fun things in life, do not neglect to budget for these things so that you do not end up being a “slave” to your home payment and never get to go out and do anything fun.
When applying for a mortgage you may notice that just the slightest increase in a mortgage interest rate can have a significant impact on the monthly mortgage payment and thus impact the price budget for homes you are shopping for.
More: 3 Things home buyers should never do
According to the National Association of Realtors, the current median home listing price in the country is $313,000 (of course the state of California’s is much higher than this). If we use a nice round number for an example of $300,000. If you qualify for a mortgage rate of 3% on a $300,000 loan the monthly payment will be $1,265. If you were to take out a $300,000 mortgage with a 3.25% mortgage rate the monthly payment goes up to $1,306.
So if you have gone over your monthly budget and determined you can afford a home payment between $1,200 and 1,250, you might consider spending $15 extra dollars a month is worth it for that $300,000 home, but stretching to paying an extra $56 a month might be too high above your max budget to keep things comfortable. When mortgage rates increase your overall purchase price budget will need to decrease to stay within an affordable monthly payment. The lower a mortgage rate is the more affordable it becomes to borrow higher amounts of money.
Should we be concerned that interest rates have gone up?
Today’s mortgage rates are still very low, but as they rise so will monthly mortgage payments, making an impact on the price of home a buyer can afford. If you are hoping to purchase a home, it is a good idea to check out your mortgage options now rather than later.
For more information on your mortgage options in Mission Viejo and California please contact me any time.
Additional Resources
- 50 Ways You Might Get Declined for a Mortgage
- Pros and Cons of Applying for a Mortgage with your spouse
- 5 Steps to Protecting Your Credit Score During a Pandemic
- 5 Things NOT to Say When Applying for a Mortgage
