Interest Rate Changes

Interest Rate CHanges

Mortgage Rate Fluctuations Affect Mortgage Pre-approvals

When you are pre-approved for a home loan, it is based on a certain recurring payment. The mortgage rate is assumed (in addition to other figures such as property taxes and property insurance). Mortgage rate fluctuations affect mortgage pre-approvals since it impacts the principal and interest component of the monthly payment. It is useful for home buyers to understand this because a fluctuation in rates can impact purchase price limits.

Mortgage Rate Fluctuations

Mortgage rates can fluctuate on a regular basis. At certain times, they might even change multiple times within a single day. As a borrower, you will not know what your specific mortgage rate will be until you select a home, have an estimated settlement date, and lock in the mortgage rate. Thus, there is some uncertainty, especially for price sensitive buyers. It is important to know what estimated mortgage rate was originally used to calculate the pre-approval and to keep the pre-approval up-to-date. During times when mortgage rates are constantly or dramatically changing, contact your lender prior to submitting an offer on a home to verify that you are still qualified for the purchase price.

Mortgage Rate Fluctuations Affect Texas Mortgage Pre-approvals

Monthly payments generally include principal, interest, municipal taxes, hazard insurance, and mortgage insurance (if applicable). For this illustration, we will only include the principal and interest portion of the payment. Assume that a buyer qualifies for a $300,000 property based on a thirty year term, 3.5% down payment, and 5% mortgage rate. The principal and interest payment is roughly $1554. If the mortgage rate rises by half a percent, that same buyer qualifies for only $283,638. That is a decrease of over $16,000 in the purchase price, which will be a property with fewer amenities. Alternatively, if mortgage rates reduce by 0.5%, the price limit elevates to $317,843. The figures below illustrate the effect of other increments for this same buyer based on a monthly principal and interest payment of $1554:

Mortgage Rate

Loan Amt

Down Payment

Purchase Price

4.00%

$325,523

$11,807

$337,330

4.25%

$315,912

$11,458

$327,370

4.50%

$306,719

$11,125

$317,843

4.75%

$297,921

$10,805

$308,727

5.00%

$289,500

$10,500

$300,000

5.25%

$281,436

$10,208

$291,643

5.50%

$273,711

$9,927

$283,638

5.75%

$266,308

$9,659

$275,966

6.00%

$259,211

$9,401

$268,612

 

Knowing Your True Price Limit

Be sure to ask your lender regarding the maximum monthly payment amount for which you are pre-approved. From there, you can better gauge the affordability of homes before viewing them. Keep in mind that there are several variables to the total figure: mortgage rate, municipal taxes, hazard insurance, and mortgage insurance. If you intend to select a home near your maximum pre-approval amount, then it will be essential to monitor mortgage rates. Your Gehan Homes sales associate and our preferred lender partner will assist you with these estimates and offer other details on how mortgage rate fluctuations impact mortgage pre-approvals.

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