When you get pre-approved for a home loan, it is based on a particular monthly payment. The interest rate is assumed (in addition to other figures such as property taxes and homeowners insurance). Interest rate fluctuations impact Philadelphia or New Jersey home loan pre-approvals since it alters the principal and interest part of the monthly payment. It is important for home buyers to understand this because a fluctuation in interest rates can impact home search options.
Interest Rate Fluctuations
Interest rates can adjust on a daily basis. Sometimes, they can even change multiple times throughout the day. As a buyer, you will not know what your particular interest rate will be until you find a home, have an estimated closing date, and lock in the interest rate. This can create some uncertainty, particularly for price sensitive buyers. It is helpful to know what estimated interest rate was originally used to calculate the pre-approval and to keep your pre-approval up-to-date. If interest rates are frequently or dramatically changing, contact your lender prior to submitting a bid on a property to confirm that you are still qualified for the purchase price.
Interest Rate Fluctuations Impact Philadelphia Or New Jersey Home Loan Pre-approvals
Mortgage payments typically include principal, interest, municipal taxes, property insurance, and mortgage insurance (if applicable). For the purposes of this illustration, we will only look at the principal and interest component of the payment. Assume that a home buyer is pre-approved for a $300,000 purchase price based on a thirty year loan, 3.5% down payment, and 5% interest rate. The principal and interest monthly payment is roughly $1554. If the interest rate increases by half a percent, that same borrower qualifies for only $283,638. That is a significant in the purchase price, which will be a different type of home. On the other hand, if interest rates lower by 0.5%, the purchase price limit elevates to $317,843. The figures below demonstrate the affect of other increments for this same buyer based on a monthly principal and interest payment of $1554:
| Interest Rate | Principal Amount | 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 |
Staying Informed
You should ask your lender regarding the total monthly payment amount for which you are pre-approved. From there, you can better gauge the feasibility of homes prior making an offer. Remember that there are several variables to the total amount: interest rate, municipal taxes, property insurance, and mortgage insurance. If you intend to purchase a home near your maximum pre-approval amount, then it will be very important to keep an eye on interest rates. Your loan consultant and real estate agent can assist you with this analysis and offer other details on how interest rate fluctuations impact Philadelphia or New Jersey home loan pre-approvals.
