Mortgage Rates Affect Your Monthly
Payment and Your Buying Power
Article Courtesy of | Jen Zweiacker, Founder of Zweiacker & Associates
Congratulations on your upcoming wedding and your exciting new life together! As many couples enter into this phase of their lives, the focus moves towards planning their future. Home ownership is often a part of the planning. When weighing the decision of whether to rent for a few years or to go ahead and purchase a home, it is important to look at unique opportunities that may exist at this time in the real estate market. Today’s mortgage rates are an important part of that conversation.
Historically low mortgage rates have been a headline for almost a decade. Are rates, in fact, historically low? If so, what does that mean for you?
Let’s begin with some context.
- Your mortgage rate is simply the amount of interest that your lender is charging you.
- Over the past 50 years, mortgage rates have ranged from 2.5% to 18%.
- A borrower’s specific interest rate will fall within a range. Where it falls depends on several factors, including the borrower’s credit score.
- Interest rates in the 80s reached 18+%.
- Interest rates in 2007 and 2008 were in the 7% range.
- Interest rates in early 2021 are in the 2.5 – 3% range.
Today’s interest rates are historically low. While there is no indication that they will rise substantially in the next few months, we will likely see an increase in interest rates over the next few years.
How Mortgage Rates Affect Your Monthly Payment
In the examples below, we are assuming a 20% down payment, so we’re not factoring in mortgage insurance. Borrowers that qualify for an FHA loan can put as little as 3 ½ % down. Conventional loans allow a 5% down payment.
The example below is to purchase a $250,000 home with a $50,000 down payment. The loan amount is $200,000.
**Approximate property taxes for Brazos County and approximate homeowner’s insurance is also included.
| Interest Rate | Monthly Payment |
| 2.65% | $1,404 |
| 7% | $1,932 |
| 16.5% | $3,371 |
How Mortgage Rates Affect Your Buying Power
The examples below show how interest rates affect the price range that a borrower can afford. Suppose a borrower would like to keep their house payment between $1,900 – $1,950 per month. In that case, the interest rate dramatically impacts the price point.
We are using a 20% down payment in the examples below. However, a borrower can purchase a home with a much lower down payment.
| Interest Rate | Home Value | Monthly Payment |
| 2.65% | $350,000 | $1,918 |
| 7% | $250,000 | $1,932 |
| 16.5% | $140,000 | $1,921 |
Many elements factor into a house payment, including the down payment, interest rate, property taxes, homeowner’s insurance, and mortgage insurance if a borrower’s down payment is below 20%. If you are interested in learning more about applying for a home loan and determining what price range is right for you, I recommend starting with a full-time, qualified Realtor®. It is wise to interview several Realtors® to find the right match. If you are a first time home buyer, you will want someone to guide you through the process and handle all of the little details so that you can focus on the fun part: buying your first home!
Jen Zweiacker of Zweiacker & Associates is an expert in real estate and loves to help newly-weds find their perfect home. To connect with Jen and her team, visit zarealestate.com or call 979.450.0455 today.