Did you know Interest Rates Are Low Right Now?
Interest rates have been one of the biggest incentives to purchase a home over the last few years. With interest rates at historic lows, you are able to borrow more money that you would otherwise. Your interest makes up a huge portion of your monthly mortgage payment.
For example, if you have a gross monthly income of $4000 with virtually no debt, you could afford a payment of around $1100 per month. That figure comes from the standard that many banks use that says your monthly housing costs should not exceed 28% of your monthly income. If your interest rate is 4%, the portion of that $1100 that goes towards your principal is greater.
When the interest rates rise to 5%, that decreases the portion of the payment that actually goes towards your principal. What that translates to is the at 4%, you might be able to qualify for a mortgage around $195,000 where as at 5%, you might only qualify for $178,000. The most important thing to remember about interest rates is that they don’t change your monthly payment, but rather how that payment is divided up and ultimately what you are about to qualify for.