By
Real Estate Agent with Jeff Fritzson Real Estate, Ebby Halliday Realtors 0629874

Yes the interest rates ticked up today, so what? Well it is more than "so what" to buyers. For most people interest rates rising tend to be a good thing. Today rising interest rates often means that the economy is recovering, people on fixed retirement incomes are getting a little more from their savings our retirement funds are increasing. These are all good things.

In real estate rising interest rates are not necessarily good things. When interest rates tick up, a buyer's purchasing power ticks down. When interest rates tick up, the number of people who could afford to buy your home ticks down. Whether you are buying or selling, these are not positive events.

## Impact

You may be asking yourself what is the impact of an interest rate increase of an 1/8%? Let's take a look. For this example we are going to assume a 30 year mortgage at a current rate of 4.5%. In this case the maximum loan amount is based on the monthly payment this person can afford.  In the table below you will see several columns: Maximum Qualified Loan Amount (MQLA), Monthly Payment (MP), Interest Rate Increase (IRI), and New Qualified Loan Amount (NQLA).

 MQLA MP IRI NQLA \$250,000 \$1,267 0.5% \$236,000 \$500,000 \$2,533 0.5% \$472,500 \$750,000 \$3,800 0.5% \$708,000 \$1,000,000 \$5,067 0.5% \$944,000

Disclaimer: I am not a lender. These are based on the assumption that the buyer can afford the monthly payment and no more. That same payment would now qualify them for a different amount based on the interest rate change.

## Rule of Thumb

You can see that a .5% increase has a pretty dramatic impact. For a rule of thumb you can easily use the following:

For every 0.125% (1/8th of a percent) increase in the interest rate you can estimate that the buyer is now qualified for a loan that is 1.375% less.

You can see this holds true in the table above. You are looking at an increase of 0.5% (4/8ths) and that would mean that the decrease should be 5.5% (4 * 1.375.) Remember these are estimates and they are very close.

## Future

Is it possible that by the end of the year we will be over 5%? Many people think so. Last April the rate was 3.45% and today they are hovering aroung 4.5% less than a year later. That means if you put off buying a home last April and started to look again this year you would not qualify for as large a loan (and therefore not as large a home.) In addition, in Frisco Texas and many other places home prices have risen.

You may now be asking yourself when is the best timeto get into this market. The answer is now. If you wait, you may miss the market entirely. More people think that interest rates will continue to rise. If the econaomy continues to improve, interest rates will rise and house prices will rise as well.

If you are looking to buy or sell a home in the North Texas marketplace and especially within Collin and Denton Counties, come find out what all my clients have found out: when you work with me—Your Success is My Focus.

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Rainmaker
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Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Jeff,  All good information for buyers to know about.  Hope all is going fine with you.

Mar 20, 2014 08:04 AM #1
1,614,024
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

The savvy seller who has equity and a sharp listing REALTOR® will understand the numbers you showed of the impact on the buyer. Pricing a home to market conditions also includes how interest rates affect buyers buying power.

Mar 20, 2014 09:48 AM #2
Rainmaker
558,405
Women of Westchester Working Together
Women of Westchester Working Together - West Harrison, NY

Yes, many don't realize how the interest rate can have a much bigger impact vs. a difference in the home price (whether it's due to waiting or negotiating).  Great post.  - Debbie

Mar 20, 2014 10:42 AM #3
Rainmaker
2,233,227
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT

Good morning Jeff. Well done with your post, you are so very right. Anyone that has a home purchase in their future should pay attention to rates, as it will affect their buying power.

Mar 20, 2014 07:02 PM #4
Rainer
96,912
Jeff Fritzson: Frisco Real Estate Pro
Jeff Fritzson Real Estate, Ebby Halliday Realtors - Frisco, TX

Hi Will - Thanks for your comment and well wished. Things are getting better. Hope you are doing well too!

Hey Joe - Thanks for joining in the fray. You are spot on with regards to market conditions and interest rates.

Hi Debbie - Really smart comment with regards to waiting or negotiating. As Joe Said a sharp listing agent will take advantage of market conditions and interest rates.

Hello Joe - I know you live this every day. Your comments are sincerely appreciated. Thank you.

Mar 21, 2014 12:22 AM #5
Rainmaker
1,218,679
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Jeff:  They say "timing is everything".  That's never more true than when you're talking Mortgage Interest Rates.  Loved the post ... the more potential Borrowers understand this theory, the better.

Gene

Mar 26, 2014 06:07 AM #6
2,286,939
1~Judi Barrett
Integrity Real Estate Services 118 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK

Jeff,

Buyers need to realize the difference in payments and total repayment that the rise in interest rates can create... and make good decisions.

Mar 29, 2014 11:33 AM #7
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Rainer
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