When you get pre-approved for a home loan, it is based on a certain recurring payment. The interest rate is estimated (as well as other figures such as property taxes and insurance). Interest rate changes affect MA mortgage pre-approvals since it impacts the principal and interest part of the monthly payment. It is important for buyers to understand this because a fluctuation in rates can affect home search options.
Interest Rate Changes
Interest rates may fluctuate on a daily basis. At certain times, they may even do so many times on the same day. As a buyer, you may not know what your particular interest rate will be until you find a home, know the settlement date, and lock in your interest rate. This can create some uncertainty, especially for price sensitive borrowers. It is helpful to find out what interest rate was originally used to determine the pre-approval and to update the pre-approval. During times when interest rates are constantly or dramatically changing, speak to your loan officer prior to preparing an offer on a listing to verify that you are still qualified to purchase it.
Interest Rate Changes Affect MA Mortgage Pre-approvals
Monthly payments normally include principal, interest, municipal taxes, homeowners insurance, and mortgage insurance (if the down payment is less than twenty percent). For this example, we will only include the principal and interest component of the payment. Assume that a buyer is pre-approved for a $300,000 purchase price based on a thirty year payment period, 3.5% down payment, and 5% interest rate. The principal and interest portion of the payment is roughly $1554. If the interest rate rises by half a percent, that same buyer will then qualify for only $283,638. That is a significant in the list price, which will be a home with different features. On the other hand, if interest rates lower by 0.5%, the price limit improves to $317,843. The table below details the affect of other increments for this same buyer based on a mortgage 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 |
Being An Educated Home Buyer
Be sure to ask your mortgage consultant regarding the maximum payment amount for which you qualify. From there, you can better gauge the feasibility of homes before making an offer. Keep in mind that there are a few figures that the total amount: interest rate, municipal taxes, hazard insurance, and mortgage insurance. If you wish to select a home close to the qualification limit, then it will be essential to monitor interest rates. Your mortgage officer and real estate advisor can assist you with this analysis and offer other information on how interest rate changes affect MA mortgage pre-approvals. For further information contact Christopher Graves at Emery Federal Credit Union via phone at 978-376-5389 or email christopher.d.graves@gmail.com.