How Do Higher Interest Rates Impact Your Mortgage Payment?

Hey, hey, it’s Chad Helmcamp here with BWC Lending, and I’m sure you’ve heard this question tossed around a lot lately: “How are these higher interest rates going to impact my mortgage payment?”

Let’s dive in and take a look at how a little change in rates can make a big difference in what you’re paying every month.

The Magic Number: 1% = 10% Less Purchasing Power

First things first, let’s get the numbers straight. For every 1% increase in interest rates, you’re looking at about a 10% reduction in purchasing power. Yes, that’s right. If rates go up 1%, it’s like getting a 10% discount on what you can afford. But, sadly, it’s not a shopping spree at your favorite store—it’s how much house you can buy.

So, let’s break this down with a real example.

Example Time: The $350,000 House (That’s Not a Dream House Anymore)

Let’s say you’re eyeing a house in the $350,000 range. A couple of years ago, when interest rates were sitting around 3%, your principal and interest payment would be around $1,400 per month. Nice, right?

But fast forward to today—rates are hovering around 6%-7%. If you’re still eyeing that same house, your payment just shot up to about $1,900 a month. That’s a $500 difference. Ouch.

What If You’re Sticking to Your Budget?

Let’s say you’re a smart shopper and your budget is still $1,400 a month. With rates at 6%-7%, you’re going to have to look at homes priced closer to $250,000 to keep that payment in check. Same $1,400, but a smaller house.

In other words, that $350,000 dream home is looking a bit more like a fantasy right now.

What’s the Future Look Like? Higher Rates = Bigger Payments (But Maybe Not Forever)

What happens if rates hit 7%? Oh, we’re not done yet! A 7% rate would push that $350,000 house to around $2,200 a month in principal and interest. That’s an $800 difference from where we started. Yikes.

And over the next 10 years? With each 1% increase, that home could cost you an additional $30,000. So yeah, it adds up. But here’s the thing: don’t panic. While this may feel like a bit of a punch to the gut, it doesn’t mean you’re doomed.

The Bright Side: A Transitioning Market & Future Refinancing

Let’s look at the silver lining here. With the higher rates, we’re actually seeing a shift to a buyer’s market. That’s right! For the first time in a while, buyers might actually get the upper hand with reduced purchase prices. And guess what? Rates won’t stay this high forever. We’re likely going to see things cool off and come down in the future.

So, if you find a home that works for you now, jump on it. You can always refinance in a year or two when rates go down. Just think of it as the mortgage version of getting a post-sale discount on something you already love!

Want to learn more? Watch the full video on YouTube here! [Watch Video]