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Fed Announces Rate Hike, Mortgage Rates Already On The Rise

Thursday, January 13, 2022   /   by Joe Johnson

Fed Announces Rate Hike, Mortgage Rates Already On The Rise

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The Federal Reserve announced it would raise short-term interest rates a quarter-percentage point and signaled it could lift them at a slightly more aggressive pace in coming years. Mortgage Rates immediately increased after this announcement. Additional fed rate increases throughout the year could push mortgage interest rates as high as 5% by year’s end.
How do rising mortgage rates affect your purchase power?
Buyers need to know what it really means when mortgage rates are rising. Purchase Power is the price of a home you can afford and is directly impacted by current mortgage rate when your purchase. Here is an example to explain…
If you qualify for a maximum monthly payment of $1,200 and interest rates are at 4.5%, then you would have the Purchase Power to buy a home up to $240,000.
Sales Price of $240,000
4.5% interest rate
$1,196 per month
30-year fixed rate
20 percent down payment
Loan amount of $192,000
What happens with a 1% increase in interest rate?
Same scenario but the interest rate is now 5.5%, then you would have the Purchase Power to buy a home up to $217,500.
Sales Price of $217,500
5.5% interest rate
$1,196 per month
30-year fixed rate
20 percent down payment
Loan amount of $174,000
After mortgage rates rise 1%, your purchasing power is reduced by 9.4%. This means you would lose $22,500 in purchasing power and have to find a home that costs $22,500 less than if you had purchased when rates were 1% lower.
Here is a graphic illustrating the price of home you can afford as mortgage rates change.
Bottom Line: For every 0.5% increase in interest rate your purchasing power may be decreased by 4 to 5 percent. For every 1.0% interest rate increase, your purchasing power may be decreased by 9 to 11 percent. Note: the percentage is smaller for lower loan amounts and higher for larger loan amounts.

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Source: Path & Post
Reiner Realty Group, Realtors with Lichtenstein Rowan
Rene Reiner
3621 Manassas Drive
Roanoke, VA 24018
540-793-4095
Joel Balsley
NMLS#210455
Licensed in VA
Office #: 540-278-1430
Mobile #: 540-597-8877
joelbalsley@atlanticbay.com


Featured real estate company is not a mortgage lender and so you should contact Atlantic Bay Mortgage Group, L.L.C. directly to learn about its products and your eligibility for such products. The featured lender has an affiliated business relationship with the featured real estate agent. You are under no obligation to use the featured lender for financing. All loans subject to income verification, credit approval and property appraisal. Not a commitment to lend. Atlantic Bay Mortgage Group, L.L.C. NMLS #72043 (nmlsconsumeraccess.org) is an Equal Opportunity Lender. Located at 600 Lynnhaven Parkway Suite 203 Virginia Beach, VA 23452.
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