The interest rate that you are willing to pay will decide the amount of money that your lender will lend you in the form of mortgage. This amount will decide the affordability of your home.

Usually home buyers think that the increasing prices of new homes will limit their capacity to buy; however, the truth is that increasing interest rate on your mortgage can also affect buying power of people.

The rapid rise in mortgage interest rates could affect housing affordability through higher monthly mortgage payments. However, monthly mortgage payments are not the only path by which rising interest rates can affect affordability. Homebuyers can instead decide to raise their down payment amount in order to maintain an otherwise constant monthly payment in the face of rising rates.

As interest rates rise, homebuyers increase their down payment in order to keep monthly mortgage payments roughly the same. However, the required increase in the down payment, both in levels and as a share of the house price, declines as mortgage rates rise.

Today lenders qualify home buyers by considering various factors. One of these factors is debt to income ratio. A low debt to income ratio shows that there is a harmony between your debts and income. If the interest rate increases 1%, this would likely put many buyers out of the market. Home values are rising in almost every part of the country so current market price of your home will become double in next few years. Buyers can go ahead of the game by getting into the market today.

According to current market conditions, rates are low and it is the best time to step into home buying. Additionally as the mortgage rates increase, the amount of principal paid down every month decreases. More money in the early years of the loan goes toward interest, which makes higher mortgage rates even less desirable.

It can be concluded that rising mortgage rates can increase monthly mortgage payments, but a larger down payment can offset this effect. However, accumulating a larger down payment may be difficult, especially for recent homeowners with little home equity, as well as first-time home buyers.

 

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