How rising interest rates will impact housing affordability when buying a home in Phoenix Arizona?
When buyer looking to buy a home, there are many things to consider and think. Most home buyers today may asking themselves “How much can I actually afford to pay monthly?” and “How will buying this home affect my lifestyle?”. “How rising interest rates will impact my affordability to buy a house?” questions can have a significant impact on the market.
Let’s say we have a couple bringing in $6,000 a month gross income. Let’s also say, they are comfortable paying and qualify for a mortgage payment of $1500. From that $1500 payment, we would deduct an estimated $400 per month for real estate taxes and insurance, and approximately $100 per month for mortgage insurance (assuming an FHA loan). That would leave approximately $1000 per month for Principal & Interest.
At 4% mortgage rates, our hypothetical borrowers would qualify for and be comfortable paying to afford a base loan amount of $218,000 home. At 5% interest rate, the same total mortgage payment of $1500 can only give our borrowers a base loan amount of $202,000!!! A 1% increase in rates, can reduce buying power almost to 10%!!!
What this means to future home buyer?
- Buyers may wind up with a higher mortgage payment than they are comfortable with and their lifestyles will suffer or worse, they may no longer qualify for their loan
- Buyers will have to “lower their sights” on lesser homes in lesser neighborhoods because their monthly carrying costs are the true determinant to buying a home
- Buyers may choose to “wait it out”, hoping that rates will come back down. Although there is no logic behind that hope, that won’t stop buyers from getting on the sidelines
Today may be the lowest interest rate you will be able to get for the rest of your lifetime. Act quickly, if you are looking to buy to get the home you want, in the neighborhood you want, for a payment you want.
Swee Ng, Realtor and Phoenix East Valley resident specializing in win-win real estate transaction through great communication and fighting for his clients’ best interest. After all, this is more than real estates, this is about your life and your dreams.
If you are looking to buy or sell your home in Phoenix AZ area, we hope you will consider us. Contact us today for complimentary consultation.
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