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

By
Mortgage and Lending with Guaranteed Rate, Inc

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.