Interest Rate Impact to Purchasing Power
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This report illustrates, in simple terms the impact increasing interest rates can have on a buyer's purchasing power. The first chart in the report does a straight forward calculation of estimated loan amounts based on a fixed monthly principal and interest payment correlated to a fixed interest rate (utilizing a 30-year amortization period).
The second chart takes the estimated loan calculation for a fixed payment amount (in this case the $1,250 per month payment) and then calculates projected purchase prices based on various down payment scenarios.
It is interesting to see the impact of what appear to be relatively small interest rate adjustments of purchasing power. For example, based again on a projected monthly principal and interest payment of $1,250, the difference between a 5% rate and a 6.5% rate results in a 15% loss of purchasing power for the buyer. Something to consider as buyers evaluate whether or not to purchase in the current market environment.
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