Homebuyers Take Note: Mortgage Elevator Is Going Up
Purchase price? Feh. When it comes to how much house you can afford, the number that really matters -- unless you live in the rarified world of cash buyers -- is what interest rate you can get. And the bad news, for those of you who thought you could wait it out until some expert told you the housing market elevator had reached the bottom floor, is that the real elevator is heading back up -- and that's the elevator of interest rates, not home prices.
According to Dan Green at The Mortgage Reports, for each 1 percent increase in mortgage rate, your home purchasing power drops 10.75 percent. That means if you could afford a $600,000 house when interest rates are 4.5 percent, you can only swing a $535,000 house when the rates go up a percentage point, assuming the same monthly mortgage payment. For each 0.125 percent increase to mortgage rates, your maximum allowable purchase price falls 1.35 percent.
With the exception of a three-month period, average monthly 30-year fixed mortgage interest rates have been at or below 5 percent since 2009. That's completely unprecedented: Average rates had never even hit a low of 5 percent prior to 2009.
The message: You'll get a whole lot more house for your money if you move quickly.
For more on mortgages and related topics see these AOL Real Estateguides:
- How to Get a Low Mortgage Rate
- Mortgage Jargon in Simple Terms
- How Much Home Can I Afford?
- How to Buy Foreclosures
More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.