Here’s an overview of how mortgage rates impact your buying power.

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How do mortgage rates affect your purchasing power as a homebuyer?

 

To answer that question, I’ll start by showing you what mortgage rate payments have looked like through the decades. At 0:57 in the video, you can see what your monthly payment would look like buying a $300,000 house:

 

Decade

Average Rate

Monthly Payment

1970s

8.86%

$2,384

1980s

12.7%

$3,248

1990s

8.12%

$2,267

2000s

6.29%

$1,855

2010s

4.09%

$1,448

 

 

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      When interest rates decline, your purchasing power goes up.

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Today, with an average rate of just 2.96%, your monthly payment would be $1,258. As you can see, when interest rates decline, your purchasing power goes up. 

 

Your mortgage payment consists of your principal and interest payments. To calculate your principal, just divide the amount you borrowed by however many months your mortgage lasts. Your interest is added on top of that, and if it’s a low number—say, 3% instead of 12%—it could mean a difference of $400 to $500 less per month. 

 

Though prices are going up in our market (and have been for quite some time), you have more purchasing power now than the average buyer would’ve had just a decade ago. 

 

If you have questions about today’s topic or you’re thinking of buying a home, don’t hesitate to give me a call. I’d love to help.