1%
Increase in Interest Rate will decrease your Buying Power by 11.22%
Monthly Mortgage Payments are directly impacted by the Interest
Rates. It means the higher interest rate, the higher monthly
mortgage payment (Principal + Interest) and vice versa. I have
created the following Table, Called it Bahman’s Magic Square, that
shows the monthly mortgage payments (P + I) for different interest
rates and different loan amounts.
Each Column represents Interest Rate, 3.5% - 4.5% increased by 1/8%.
e.g., 3.500%, 3.625%, etc.
Each Row represents the Loan Amount from $100,000 to $112,650
increased by 1.5%. e.g., $100,000, $101,500; etc.
Each Cell shows the Monthly Mortgage Payment for a given Loan amount
and given Interest Rate. E.g., Monthly Payment for a loan of
$100,000 and Interest Rate of 3.5% is $449.04, (Round-off $449),
etc.
Interesting enough, you can see all left-to-right diagonal values
(their color is the same) are the same or almost the same.
Considering rounding off, they are all the same. e.g., The Monthly
Mortgage payments for the following pair are the same ($100,000 and
4.5000%), ($101,500 and 4.375%), ($103,203 and 4.250%), ($104,568
and 4.125%), ($106,136 and 4.000%), ($107,728 and 3.875%), ($109,344
and 3.75%), ($110,984 and 3.625%), ($112649 and 3.5000%).
All the same colored cells (left-to-right diagonal values) are the
same or almost the same.
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CONCLUSIONS: |
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For each 1/8% Decrease in
Interest Rate, it will Increase your Buying Power 1.5% |
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For each 1% Decrease in Interest
Rate, it will Increase your Buying Power 12% |
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For each 1/8% Increase in
Interest Rate, it will Decrease your Buying Power 1.48% |
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For each 1% Increase in Interest
Rate, it will Decrease your Buying Power 11.22%
Interest rates are now in their record low, but it will not
stay like this for ever. Sooner or later in next couple of
years will increase. Remember, Your buying power, assuming
everything else stays the same, will decrease more than
11.22% of the purchase price if interest rate only increases
1%. It means if you can afford and qualify to purchase a
house today at $250,000 with 20% down and 3.5% Interest
rate, when the interest rate increases to 4.5%, you can only
afford a house at $222,000 and 20% down.
If you can afford and are qualify, take advantage of today’s
low interest rates to get more home for your money.
As Warren Buffet Said, “I would buy a home and finance it
with a 30 year mortgage; it’s a terrific deal.”
If you have credit score issues, read the following articles
to see how you can improve your score..
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What is a credit score,
What makes up a credit score, Tips on how to improve their credit score,
What impact they have on your Interest rates & why they are important,
List of Do’s and Don’ts they should do before applying a mortgage loan, and
List of Do’s and Don’ts after being approved for a mortgage loan.
How Long Do I Have To Wait After Foreclosure or Bankruptcy
