Free Thinking – Will Rising Mortgage Interest Rates Impact Housing Affordability?
The housing market has been on a tear the past few years fueled by a combination of low interest rates, decreased new home construction, and the increased mobility of newly mobile workers. Mortgage interest rates have increased from roughly 3% to 4.5% for a conforming 30-year fixed rate mortgage (Wall Street Journal, 3/31/2022).
Will that have any impact on housing affordability? Let’s look at the math.
Many buyers have a target monthly mortgage payment and will purchase as much home as possible. Let’s assume a buyer has $2,000 a month to allocate. How much mortgage will that buy (30-year term)?
| Rate | Mortgage | Decrease |
| 3% | $ 474,379 | |
| 4% | $ 418,922 | -12% |
| 5% | $ 372,563 | -21% |
| 6% | $ 333,583 | -30% |
Other buyers have a target mortgage size and will work to fit a monthly payment into their budget. Let’s assume a buyer is wants a $400,000 mortgage. How will the monthly payment change (30-year term)?
| Rate | Payment | Increase |
| 3% | $ 1,686 | |
| 4% | $ 1,910 | 13% |
| 5% | $ 2,147 | 27% |
| 6% | $ 2,398 | 42% |
So will an increase in mortgage interest rates impact housing affordability?
This is not specific mortgage advice, but a simple math exercise. Need help? Please feel free to call or email any time.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
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