What effect do higher interest rates have on a buyers purchasing power?

Yesterday I was asked how much an increase in interest rates would effect a borrowers purchasing power.　

I provided the following example and wanted to share...　

Assuming current rates are around 4.875% (4.99% APR) and rates increased to 5.5% (5.69% APR) it could affect the buyers purchasing power by as much as $20,000!  Here is an example...　

Let's take a $300,000 mortgage at 4.875% for 30 years.　 The mortgage payment (principle and interest only) would be $1,587.62.　　

In order to have this same mortgage payment at a 5.5% interest rate the mortgage amount would need to be $279,614.　

You can see there is more than a $20,000 difference in purchasing power with a small increase in interest rates.　

If you have sellers/buyers who don't want to reduce their sales price or are on the fence about buying, showing them how much buying power they will lose if rates do go up a little might help them make their decision.

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