If Rates Rise, What Can I Afford?

Today, I wanted to talk with you about the power of interest rates and the effect that rising rates has on the ability of a family to own a home.  We all know that rates have been rising steadily since the beginning of summer.  We are now talking about rates in the high 4% range.  While I wish I could predict the future of interest rates (probably wouldn’t be schlepping loans if I could do that!) I think it is safer to say that we are going to be in a higher rate environment in the next year than we are in right now.  For the clients who fear they have already missed the boat with rising rates, what does the future look like for those that continue to wait versus those that buy now?  Let’s take a look…

Let’s assume that a client family makes about $100K a year or $8333 per month.  Using Fannie/Freddie standard qualifying ratios, this client can afford a maximum of $2500 per month for a housing expense.  Let’s assume that there is $500 per month in expense for the county taxes and home owners insurance.  That leaves us $2000 per month to support a mortgage payment.

·         At 4.75%, $2000 per month over 30 years supports a $383,400 mortgage loan.

·         At 6.00%, $2000 per month over 30 years supports a $333,500 mortgage loan!

·         At 7.00%, $2000 per month over 30 years supports a #300, 600 mortgage loan!

As rates rise, clients buying power erodes.  The cost of waiting can be very high and in this day and age, there is little or no wiggle room to “push the limits” on getting a client qualified.

The point behind this information is that the clients you have that think they have missed the boat might really miss the boat if they continue to wait instead of buying now.  Maybe you can use this information to get someone off the fence.  Oh and by the way, for those potential listings you have that are waiting to get their home on the market, if they wait too long, they too may miss an opportunity to get that next house they want too.  Use this information to prod them along too.

John Zerwin


Mortgage Loan Originator

Catalyst Lending