Don’t Let Changing Interest Rates Weaken Your Purchasing Power

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Our purchasing power is affected by rising interest rates. Right now, interest rates are at an all-time low, historically speaking. What that means is that you’re getting a lot more house for your dollar because money is cheap. Today I wanted to discuss the effects of changing interest rates on your purchasing power.

So what does this mean when—not if—interest rates start to go up again? These rates won’t stay low forever. Let’s look at how a rise in interest rates would impact your purchase price.

As an example, let’s say $1,500 is the amount you want to spend on your monthly mortgage payment, and 4% is the current interest rate. How much house can you buy with 10% down? This equates to a $350,000 purchase price.

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Now is the time to buy in case interest rates rise again.

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Now let’s say that six months down the road, interest rates tick up another 1%, but you don’t want to pay more than that $1,500 per month. Your purchase price would now be $311,100. This 1% rise in interest equates to nearly $40,000 less in purchasing power. A 2% rise would bring your purchase price down to $278,550, a 3% rise would bring you to $251,100, a 4% rise would leave you at $227,650, and so on.

This information is important to know as a buyer because you can easily see what a great position you’re in with the 3.5% interest rates in place today. This is also why if you’re a seller, you’re going to have some great exposure with access to such cheap money. Interest rates are low enough that buyers can now afford more house for less money per month.

If you’re thinking about buying a home sometime in the next six or 12 months, now is the time to buy, in case interest rates rise again and lose you over $40,000 off of your potential purchase price.

For more information, please feel free to reach out by phone or email. I’m happy to be a resource for you!