Buyer's Purchasing Power

mmunoz724
Feb 20, 2019
1 min read

how higher interest rates affect your buying power & what does this mean if you are planning to buy a home?

High Rates= More money spend on interest

As interest rates rise, the principal and interest payment increases so the loan amount must decrease to maintain a similar payment, lowering your purchase power.

For example: A $200,000 loan

amount has a principle and interest payment of $1,013 at 4.5% . As the interest rate increases, so does the payment. For every .25% increase in rate, the payment increases $30 on the same $200,000 loan. If the rate goes up 1.00%, the payment goes up to $1,136 which is a $123 increase or the loan amount would need decrease to about $180,000 to maintain a payment similar payment of $1022. This is a $20,000 reduction in your purchase power. See the $200,000 chart.

Here is a breakdown of Principal and Interest Payments rounded to the nearest dollar amount for various loan amounts and rates: