The Effect Of Higher Mortgage Rates On Purchase Price

Mortgage rates have risen over the beginning of 2010 and are expected to climb significantly after the Federal Reserve stops purchasing mortgage backed securities in March.  Additionally any improvement to the overall economy will push rates higher as money moves out of mortgage bonds and into stocks.  A couple years ago when the economy was at full steam 30 Year Fixed loan rates were in the upper 5 and low 6% range.   So the question that all home buyers need to ask is how will a rise in mortgage rates affect their purchasing power.  While the exact numbers vary based upon your intended purchase price, I’d like to give you an idea in the chart below.

Note that a .5% increase in the interest rate from 4.875% to 5.375% would result in roughly a $25,000 decrease in purchasing power!  That could be a huge difference in properties to choose from or leave the buyer with limited negotiating flexibility.  With the home buyer tax credit, buyers have one reason to purchase in the upcoming months; the increase in interest rates that is likely to come is another to take into consideration.

Michael Pollock is an Accredited Buyers Representative, member of the Seattle King County Association of Realtors and Licensed Loan Originator in Washington.  He also works with clients in the Tacoma/Pierce County area – visit EXP there at www.tacomapowersearch.com