Acton Real Estate Blog – Interest Rates Make a Difference

By Victor Normand
Published: January 2011

How is buying power affected by changes in interest rates?   More than you might think.  Here’s a comparison that holds the monthly mortgage payments and the down payment constant as the purchase price changes.

For a low down payment FHA mortgage (the second example), a one percentage point increase in the interest rate decreases purchasing power by over $38,000 or more than ten percent in the following example.
Interest Rate 4.5% 5.0% 5.5%
Purchase Price $450,000 $429,800 $411,500
Down payment >=20% $90,000 $90,000 $90,000
Mortgage Amount $360,000 $339,800 $321,500
Mortgage Payment $1,817 $1,817 $1,817
Decrease in Purchasing Power 4.5%
8.6%
Interest Rate 4.5% 5.0% 5.5%
Purchase Price $375,700 $355,600 $337,300
Down payment >=3.5%* $15,750 $15,750 $15,750
Mortgage Amount $359,950 $339,850 $321,550
Mortgage Payment $1,817 $1,817 $1,817
Decrease in Purchasing Power 5.4%
10.2%
* FHA Minimum