How Do Mortgage Rates Going Up Impact Buyers?

To better understand how interest rate changes impact mortgage payments, let’s take the example of a $800,000 mortgage with a term of 30 years. We’ll calculate the monthly mortgage payments at different interest rates, starting at 3.2% and increasing by 1% increments up to 9.2%.

Assuming a fixed-rate mortgage with monthly payments, the following table shows the monthly mortgage payments at different interest rates:

As you can see, as interest rates increase, so do the monthly mortgage payments. At 3.2%, the monthly mortgage payment on an $800,000 mortgage would be $3,453.65. But at 9.2%, the monthly payment would be $7,307.12, which is more than double the payment at 3.2%. This demonstrates just how significant an impact interest rates can have on mortgage affordability.

To put this in context, let’s assume a borrower has a debt-to-income ratio of 43% and is applying for a mortgage with a lender who requires a maximum DTI of 43%. At an interest rate of 3.2%, this borrower would need to earn a minimum of $8,034.07 per month to qualify for the mortgage. However, if interest rates rose to 9.2%, the borrower would need to earn at least $16,987.47 per month to qualify for the same mortgage.

Therefore, rising interest rates can make it harder for borrowers to qualify for a mortgage and buy a home. Additionally, higher interest rates may cause borrowers to opt for smaller loan amounts or lower-priced homes to keep their monthly mortgage payments within their budget.

In summary, rising interest rates can have a significant impact on the affordability of buying a home, as it increases the cost of borrowing money, resulting in higher mortgage payments and potentially reducing the amount of money a mortgage lender is willing to lend to a borrower.

*I think all the numbers are correct but please don’t be upset if they aren’t lol