With the Federal Reserve increasing rates last December, and
predicting two more rate increases in the near future, how are these changes
going to affect your purchasing power? What
is purchasing power you ask? Simply put,
it is the dollar amount of home you can afford in your given budget. Some buyers get confused and think the interest
rate only affects your monthly payment, but your interest rate also has a
drastic influence on the overall purchase price you can afford as well. Let’s exclude property taxes and homeowners
insurance for a minute since those vary from house to house, city to city, and
solely look and principal and interest.
The below chart highlights principal and interest payments
around $1400. Well, if you bought your
home in the middle of 2016, you would have been able to purchase a $300,000
home. Today’s interest rate on a 30 year
fixed is just above 4%. Remember, the
FED is predicting two more rate increases in the near future, so the rate could
quickly move to 4.5% before you know it. If those predictions hold, you will only be able to afford a $277,500
home. Your income hasn’t changed in this
equation. Only timing and interest
rates. Keep this in mind if you are on
the fence on whether or not now is a good time to purchase.