How low interest rates make affordability levels skyrocket

Real Estate Agent with Keller Williams

Dan Rosenberger from Harvest Realty in Westfield Indiana wrote a great blog below on how current interest rates make homes more affordable. 

The chart Dan uses to illustrate a $1,000 monthly mortgage payment with differing loan amounts really helps home buyersunderstand what a 4% interest rate means.   

No matter if you are in the Far North Suburbs of Indianapolis or the Far North Suburbs of Dallas, this information rings true.


Original content by Dan Rosenberger

We have all heard about how these are the lowest interest rates since some time in the past.  (A few years ago they were saying the lowest rates since the Eisenhower Administration.)  In the first few pages of a Google search I really couldn't find the last time mortgage rates were as low as they are now.

What low interest rates do to affordability is illustrated on the chart below:

Monthly Payment Interest Rate Term Years Loan Amount
1000 9 30 124,280
1000 8 30 136,283
1000 7 30 150,306
1000 6 30 166,791
1000 5 30 186,281
1000 4 30 209,495

The monthly payment of $1000 (principal & interest only) would have covered a mortgage of about $136,000 back in the days of 8% interest rates in 2000. It would have been good for about $166,000 when rates were 6% about two years ago.

With rates between 4% and 5% like we are seeing now, the loan amount is getting close to $200,000.  Your lender can show you what is possible with current rates.

When you consider in the fact that most areas have some good deals in the months following the expiration of the tax credits, affordability is soaring. With that said, people should normally buy "less house" than what some ratio chart says they can afford.  Low rates can make a higher priced home fall  within affordability levels, or they can be used to own a home with a comfortabe lower payment.

Indianapolis-Carmel, Indiana real estate represents one of the most affordable areas of the country according to recent surveys.  Contact me for informtion about finding your affordable home in the Indianapolis-Carmel Indiana area.  (And yes, we would be happy to show you foreclosures, HUD Homes and short sales.)

Please note the following: The above chart is for illustration purposes only. This is not an offer to extend credit.  Annual Percentage Rate (APR) will vary for your specific loan,  Consult your mortgage lender for information about APR.  The chart above shows approximate loan amounts for $1,000 principal and interest payments at various interest rates. Your lender may require additions to your monthy payment for property taxes, insurance and other items. 

Comments (5)

Pat Champion
John Roberts Realty - Eustis, FL
Call the "CHAMPION" for all your real estate needs

Great rates for buyer's and it does allow the home buyer to be able to afford more home for less money.

Sep 11, 2010 01:09 PM
Michael Ford
Coldwell Banker Heritage Homes - Marion, AR
Matching Families with Homes

Mark that is a great chart.  I think I'm going to do a ad around interest rates.  Thanks for the re blog!

Sep 11, 2010 01:10 PM
Dan Rosenberger
Harvest Realty - Westfield, IN

Mark, thanks for the kind words and the reblog.   I think people keep hearing about the lowest interest rates since way back when, but it take a chart like this to illustrate how lower rates can seriously increase buying power.

Sep 11, 2010 02:22 PM
Ray Saenz
Exit Realty Laredo - Laredo, TX
Homes for Sale in Laredo, TX - Texas, Realtor

this is a huge impact and a great example that you wrote about it, thanks for the re-blog, it's always amazing to educate buyers about it !


Sep 11, 2010 02:24 PM
Mark Hitz
Keller Williams - The Colony, TX

Hi all - Thanks for the comments.  Dan really did a good job explaining it in buyers terminology.  Like Pat sums it up: more home for less money.

Sep 12, 2010 10:37 AM