Southern Maryland Best Buys

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How low interest rates make affordability levels skyrocket

This chart really spells it out so a consumer can easily understand. This is valuable to consider if your instincts are to wait. Interest rates go down, then so does your affordability.

We have all heard about how these are the lowest interest rates since some time in the past.  (A few years ago they were saying the lowest rates since the Eisenhower Administration.)  In the first few pages of a Google search I really couldn't find the last time mortgage rates were as low as they are now.

What low interest rates do to affordability is illustrated on the chart below:

Monthly Payment Interest Rate Term Years Loan Amount
1000 9 30 124,280
1000 8 30 136,283
1000 7 30 150,306
1000 6 30 166,791
1000 5 30 186,281
1000 4 30 209,495

The monthly payment of $1000 (principal & interest only) would have covered a mortgage of about $136,000 back in the days of 8% interest rates in 2000. It would have been good for about $166,000 when rates were 6% about two years ago.

With rates between 4% and 5% like we are seeing now, the loan amount is getting close to $200,000.  Your lender can show you what is possible with current rates.

When you consider in the fact that most areas have some good deals in the months following the expiration of the tax credits, affordability is soaring. With that said, people should normally buy "less house" than what some ratio chart says they can afford.  Low rates can make a higher priced home fall  within affordability levels, or they can be used to own a home with a comfortable lower payment.

Indianapolis-Carmel, Indiana real estate represents one of the most affordable areas of the country according to recent surveys.  Contact me for information about finding your affordable home in the Indianapolis-Carmel Indiana area.  (And yes, we would be happy to show you foreclosures, HUD Homes and short sales.)

Please note the following: The above chart is for illustration purposes only. This is not an offer to extend credit.  Annual Percentage Rate (APR) will vary for your specific loan,  Consult your mortgage lender for information about APR.  The chart above shows approximate loan amounts for $1,000 principal and interest payments at various interest rates. Your lender may require additions to your monthly payment for property taxes, insurance and other items. 

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Comment balloon 1 commentCheryl Ritchie • September 12 2010 01:16PM
How low interest rates make affordability levels skyrocket
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