When you get qualified for a home loan, it is based on a particular monthly payment. The interest rate is estimated (as well as other amounts such as taxes and insurance). Interest rate fluctuations impact Newburyport pre-approval amounts because it determines the principal and interest part of the total payment. It is useful for buyers to understand this because a change in interest rates may impact homes that can be purchased.
Interest Rate Fluctuations
Interest rates may change on a regular basis. At certain times, they can even change many times throughout the day. As a borrower, you may not know what your particular interest rate will be until you identify a property, know the settlement date, and lock in your interest rate. Thus, there is some uncertainty, especially for price sensitive borrowers. It is helpful to find out what interest rate was used to determine the pre-approval and to update the pre-approval. During times when interest rates are constantly or dramatically moving, contact your loan officer prior to submitting an offer on a property to confirm that you are still qualified to purchase it.
Interest Rate Fluctuations Impact Newburyport Pre-approval Amounts
Mortgage payments generally include principal, interest, municipal taxes, property insurance, and mortgage insurance (if applicable). For the purposes of this example, we will only discuss the principal and interest component of the payment. Assume that a home buyer is pre-approved for a $300,000 home based on a 30-year term, 3.5% down payment, and 5% interest rate. The principal and interest payment is approximately $1554. If the interest rate increases by 0.5%, that same borrower qualifies for only $283,638. That is a significant in the purchase price, which may be a home with different amenities. Alternatively, if interest rates lower by 0.5%, the price limit increases to $317,843. The table below details the affect of additional increments for this same buyer using a mortgage principal and interest payment of $1554:
|Interest Rate||Loan Amt||Down Payment||Sale Price|
Knowing Your Current Price Limit
You should ask your loan officer about the total payment amount for which you are pre-approved. From there, you can better determine the feasibility of homes before viewing them. Keep in mind that there are several components to the total figure: interest rate, municipal taxes, property insurance, and mortgage insurance. If you wish to purchase a home near your maximum pre-approval amount, then it will be essential to keep an eye on interest rates. Your mortgage consultant and real estate broker can assist you with this analysis and offer other information on how interest rate fluctuations impact Newburyport pre-approval amounts.