Free Thinking – Interest Rates and Housing

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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