How Rising Mortgage Rates Can Affect Your Purchasing Power

This past week in the news we have heard a lot being said about the Obama administration trying to change the way Freddie Mac and Fannie Mae are controlled. The government is trying to step out; so to speak of the mortgage business. Now, while I agree with the concept of less involvement of the government; what impact will that have on mortgage rates and consumer buying power?

The propsals presented all have the government eihter taking a more limited role or removing their role completely. This is not necessarily a bad thing. Since these two compnaies are owned by the tax payers and are losing money daily. If we had a business losing money we would close it up. However; the greater impact this is having is what it has done for short term interest rates currently.

Though interest rates are relatively low right now; they are starting the creep upwards. It is getting harder to find the low 4% rate we were getting a few months ago with good credit. That rate has increased about a half to three quarter a point. In the grand scheme of things it may not seem like a large increase. But, it has a factor in the buying power of a potential homeowner.

A half point increase in the interest rate affects your monthly mortgage paymnet about $30.00 a month. This basically averages out to be every half point the interest rate increases menas your income needs to be 3% more to offset the increase in payment. That is assuming you are at or close to the maximum ratio for debt to income.

So, the increase in interest rates can have a trickle affect on the buying power you have or what you are looking at to buy. You may have talked wth a mortgage professional that told you a couple months ago that you could afford up to X amount of dollars and now that has lowered. For every half point the interest rate rises it lowers your purchasing power by $6,000 per every $100,000.

A lot of people write that it is a good time to buy. Maybe. But one thing is for certain. Interest rates are starting to climb as unemployment is decreasing and the economy is shaking itself out of the recession. The longer you wait could dramatically alter the amount of home you can afford to buy.

Dave diCecco
Realtor/Broker
www.davedicecco.com