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)?
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)?
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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