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Steve Barfield's Blog

By Steve Barfield | Agent in Daphne, AL

Interest Rates and Purchasing Power

About 7 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 (and sellers) need to ask is how will a rise in mortgage rates affect purchasing power.

I did some rough calculations on a $200,000 loan.  Approximate payment on a 30 year 200k loan at 4% is about $955 (principal and interest).  It you raise that rate by .5 percent and keep the payment the same, your available loan amount drops to about $188,500.  A loss of $11,500 of purchasing power. 

This has implications for both buyers and sellers in today's markets.  Sellers waiting for prices to recover can see the pool of available buyers shrink due to rising interest rates.  Buyers waiting for any reason can see their purchasing power reduced by forces outside their control.

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