Interest Rates and Purchasing Power
The slightest increase in the Federal interest rate can affect your purchasing power, or, how much you can borrow. Although it seems nominal, a 1% increase in the interest rate reduces your purchasing power by almost 10% because you’re paying more to borrow money. For example, with the interest rate hovering around 4.00% and an annual salary of $172,000, a comfortable sales price without breaking the bank is around $983,000. Compare that to a 1% interest rate increase to 5.00% with the same salary, then the highest sales price declines to $897,000.
Bottom line is, if you are seriously looking, keep your eye out on interest rate updates. Talk to a lender before to get an idea of their rates and how much you can afford. I also have several lenders who have hooked up past clients with great rates. Click here for my resource list.
Read the Reuters article here for more information on what the feds are saying about raising the interest rates.