For a first time homebuyer, the amount of numbers that get thrown out during the property search process can be overwhelming. Not only is there the listed home price to focus on, you’ll need to contend with closing costs, your down payment amount, the interest rate for your mortgage, how much mortgage you are pre-approved for, taxes, and so on. Unless you’re a math whiz, it can be hard to keep all those numbers straight long enough to figure out how much house you can actually afford. The Russ Phillips Team wants to help you find the perfect house here in Georgetown, Austin, or the surrounding areas. As you look through homes for sale, one of the most beneficial things you can do for your search is know how much house you can afford, and a large part of that is understanding how your mortgage payments will change commensurate with the interest rate.

 

Mortgage Basics

The most important thing to note about your mortgage is that as your interest rate increases, your buying power decreases. What this means is that your pre-approved mortgage amount may not change, but as your interest rate goes up, so does your monthly payment. In order to stay within a monthly payment you can afford, when your interest rate goes up, the home’s sale price has to decrease; this relationship is what’s colloquially called your “buying power.”

 

Interest Rate Variability

If you’re thinking of buying real estate, it’s important to pay attention to the interest rate because it can change monthly. This, in turn, means that the price of the home you can afford will fluctuate every month - something both you and your realtor should keep in mind as you look at property value, home cost, features, and so on.

For example, if you have 20 percent down on a $300,000 sale price, the monthly principal and interest payment would be $1,180.65 if your interest rate is 4.25 percent. However, with the same down payment and sale price, but an interest rate of 4.75 percent, that monthly payment goes up to $1,251.95 and at 5.25 percent, the monthly payment is $1,325.29. What this means in terms of your loan is that, as your interest rate increases, the home price will need to come down in order to meet the loan’s maximum allowed principal and interest payment. So, if your max principal and interest is $1,200, and your interest rate is 4.75 instead of 4.25 percent, the home cost has to come down to $275,000.

Staying Up On Your Property Search

If that paragraph of numbers has your eyes crossing, don’t worry! The expert realtors at The Russ Phillips Team can help you sort everything out. We keep track of realty trends in Georgetown, Austin, and nationwide so we can help you purchase the best house for your budget and needs. Fortunately, interest rates are at a historical low currently, but they are predicted to rise in 2017. Call The Russ Phillips Team to get more information and begin your property search today!