Housing affordability has never been so low. The fact that interest rates are still low, there is a huge inventory, and list prices are also very low. How long will this situation last is unknown. A rise in interest rates on mortgages has been in the news for months now. However, due to unseen events, interest rates are being held down because many of the grand pubahs of international finance continue to believe that the United States is still one of the best places to put their money.
For example lets take a look at a home purchase of $300,000, a conventional loan with a 30 year pay back, and 20% down payment. You are financing a mortgage for $240,000.00 and at an interest rate of 5.375% your monthly payment will be $1,343.94. Now suppose interest rates go up one percent to 6.375%. The new monthly mortgage payment increases to $1,497.28 almost a 12% increase and an additional expense of over $55,0000 over the life of the loan.
Suppose that $1.343.94 was the maximum that you wanted to pay each month for your mortgage. It looks like you can no longer afford the $300,000 home. You can however, afford to buy a home for $269,645 with a 20% down payment, you will be financing $215,700 netting you a monthly mortgage payment of $1,345.69.
Interest rates will go up and when they do, that is when your purchasing power will be diluted.
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