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If you’re thinking of buying this year you should know interest rates are going up. When interest rates go up so does your monthly mortgage payment. When your monthly mortgage goes up your purchase price target goes down. It’s all connected.
Let’s break down how this affects your monthly mortgage payments.
At a $1,000,000 purchase price with 20% down and 3% interest rates your monthlies are $3,373 at 4% interest rate it goes up to $3,819.
At $2,000,000, 20% down and 3% interest rate your monthlies are $7,589 at 4% increase your monthlies to up to $8,593.
At $3,000,000, 20% down and 3% interest rate your monthlies are $11,805 and at 4% they go up to $13,368.
A 1% increase in interest rate lowers your home purchasing price by 9%. So if you qualified for a $1,000,000 when interest rates were at 3% you will likely need to adjust your pre-approval price by 9% if the interest rates jump to 4%, you can also increase your downpayment to cover the difference.
Lets say interest rates go up from 3% to 5% the purchase price should be adjusted down 17%.
The difference in 1% can be significant to you. Keep this in mind as we expect to have a few hikes throughout 2022.