If you are wondering whether the today’s low mortgage rates make a difference, consider this: a 1 percent increase in your mortgage interest rate is the equivalent of a 9 percent increase in the price of the home you are trying to buy.
In other words, a mortgage rate increase from 5 percent to 6 percent would raise your monthly principal and interest payments by the same amount as a price jump on a $200,000 home to $218,000 home.
You can also look at it this way: a 1 percent increase in the mortgage rate decreases your buying power substantially. For example, a borrower with an income of $3,850 per month (with no debts) might qualify for a $200,000 loan at 5 percent, but only about $180,000 at 6 percent.
Today’s mortgage rates are hovering below 5 percent, and an increase of as little as 1 percent can make a big difference not only in what you pay but also in the amount of money you can borrow.
Current rates matter most
When you are applying for a home loan, regardless of whether you are buying your first or refinancing your existing home, it is important to track mortgage rates so you can lock in a low rate.
Following trends in mortgage rates can give you a point of reference so you can compare loan products, but for borrowers, the most important numbers are mortgage rates today and predictions about where mortgage rates are headed.
Michele Lerner contributed to this answer.