Life in Newtown, CT: Mortgage Rates and your Purchasing Power

Mortgage Rates and your Purchasing Power

Mortgage Rates and your Purchasing Power There are many moving parts to purchasing a home - two of them are the purchase price of the home and the mortgage rateMortgage rates change every day, but recently they went from 4.85% to 5.75% and are now back down around 5.25%.  We have had a few first time homebuyers who have only been concerned about "the bargain" price on their purchase.  When we pointed out the variation of the mortgage Mortgage Rates and Your Purchase Powerrate and how it affected their purchasing power, they didn't get it at first.  This got us to thinking ...

We're going to post a few tables with lots of numbers on them.  Numbers can be intimidating, so for you non-numbers people - get ready!

Here are the constants:  If you were to purchase a $400,000 home and put down 20%, you would be left with an 80% mortgage or a $320,000 mortgage. We have set the taxes and home owner's insurance at $550/month.  Debt to income ratio is low and you have a high credit score (FICO score).

This table shows how the monthly mortgage payment and the Total Payments for the Life of the Loan change as the mortage rate increases

Mortgage Amount

Mortgage Rate

Monthly Payment Amount

# of Payments

Total Payments for Life of the Loan

$320,000 4.50% $2,171.39 360 $781,700.40
$320,000 4.75% $2,219.27 360 $798,937.20
$320,000 5.00% $2,267.83 360 $816,418.80
$320,000 5.25% $2,317.05 360 $834,138.00
$320,000 5.50% $2,366.92 360 $852,091.20
$320,000 5.75% $2,417.43 360 $870,274.80
$320,000 6.00% $2,468.56 360 $888,681.60

Now, how much income do you need to purchase your $400,000 home?  The mortage interest rate affects the amount of income you need to qualify for a mortgage.  The next table will show you.

Mortgage Amount

Mortgage Rate

Annual Income to Purchase
$400,000 home
$320,000 4.50% $78,960
$320,000 4.75% $80,701
$320,000 5.00% $82,467
$320,000 5.25% $84,256
$320,000 5.50% $86,070
$320,000 5.75% $87,907
$320,000 6.00% $89,766

Some people want a monthly mortgage payment at a set amount to fit their budget.  This last table  illustrates a set payment amount with varying mortgage rates and how your purchase power changes.

Monthly Mortgage Payment

Mortgage Rate

Your Purchase Power
$2,267.83 4.50% $423,791.15
$2,267.82 4.75% $411,635.86
$2,267.82 5.00% $400,000.19
$2,267.82 5.25% $388,857.86
$2,267.82 5.50% $378,184.06
$2,267.82 5.75% $367,955.34
$2,267.82 6.00% $358,149.55

We just threw out a lot of numbers and a lot of information to you.  If you have any questions, please feel free to email us!

Bob & Richelle Ward, Realtors, ABR
Prudential Connecticut Realty
Cell - (203) 470-9818

Bob and Richelle Ward, Realtors, Newtown, CT

Bob and Richelle Ward - The Ward Team
Coldwell Banker Residential Brokerage
Bob's Cell: 203 470-9818  l  Richelle's Cell: 203 470-9819
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Comment balloon 1 commentThe Ward Team • June 28 2009 10:46AM


Interesting  analysis.  Hopefully what buyers should realize is a move of 1% in rate is the equivalent of a 10% move in house price and a 10% change in the total cost of a home.  With mortgage rates at an all time low, and the $8,000 first time homebuyer credit, this is an ideal time to buy regardless of the short term movement in home prices.

Posted by Dan Ianniello almost 10 years ago