How Interest Rates Affect Home Buying Power

When purchasing a home, did you know the mortgage interest rate you obtain can directly impact the loan amount for which you may qualify. That’s right! In fact, the higher the loan amount, the more an interest rate may affect your buying power.


Home and bag of money on a scale.

But what exactly is buying power? Buying power is comprised of the total amount of money you have available each month for a mortgage payment. Any money you’ve saved for a down payment, the proceeds from the sale of your current home, if applicable, and the amount of money you’re qualified to borrow all impact your buying power as well. When you take all of this into account, you may find you’re able to purchase a larger home or a home in a more desirable neighborhood.


As interest rates have dropped to near-historic lows, it’s clear that now may be the right time to buy and sell a home. If you’ve been on the fence about purchasing a home, you probably want to act soon. You may find that you can afford a bigger, better home than you thought – while still making reasonable monthly payments.


While your interest rate should not be the only consideration when buying a home, a lower rate can result in a higher purchase price and loan amount for which you may be approved.


Here’s how a lower interest rate can mean more buying power for you:


Example 1:

In this scenario — for a similar monthly principal & interest payment — the lower interest rate yields a difference in buying power of $25,000!


Example 2:

In this scenario — for a similar monthly principal & interest payment — the lower interest rate yields a difference in buying power of $50,000!


If you are planning to purchase a home, be sure to understand the costs in addition to your principal and interest mortgage payment such as property taxes, insurance, maintenance, repairs, and utilities.


Source: Prosperity Home Mortgage