Real Estate

What Future Mortgage Interest Rate Increases ‘Cost’ Home Buyers in Affordability

A national employment report at the end of last week (11/6) for October showed surprisingly positive news. October’s report delivered data on strong job creation, increasing average hourly wage earnings and a drop in unemployment. This is in stark contrast to earlier employment reports nationally that hit during Summer and the beginning of Fall.

Sounds like great news? “Everyone loves positive economic data in the US. It causes a spike in good feelings and confidence, and a drop in the doomsday mentality that results from bad news,” commented Gerard DiRuggiero, Principal Broker of UrbanLand Company. “The downside to good news is that it motivates the Fed to allow short and long term interest rates to rise. This recent positive report increases the chances that the Fed will let rates rise in December versus waiting until after the new year.”

An increase in mortgage interest rates means less buying power due to higher monthly mortgage payments. Here’s a brief view on what happens to affordability for buyers as rates increase.

  • Right now, a 30-year fixed rate mortgage with a 10% down payment on a $350,000 home at 4% will cost you just $1,503.86/month plus taxes, homeowner’s insurance and PMI (Private Mortgage Insurance).
  • That very same 30-year fixed rate mortgage with 10% down at a higher rate of 4.5% will cost you $1,596.06/month. That’s an extra $92.20/month and $33,191.54 over the 30-year life of your mortgage. If rates climb to 5% the incremental cost jumps to $184.40/month and $66,383.08 over 30 years.

Small increases in interest rates cost the home buyer quite a bit in their monthly budgets.

The basic formula for affordability is that for each 1% increase in interest rates, there is a corresponding 9% drop in the price of the home you can afford to safely purchase.

What’s it mean to you? If you’re a renter and making visible moves toward at least owning a condo, you don’t have to be scared. Interest rates will most likely move upward in relatively small increments as the Fed loosen rate restrictions.  “Our best advice to you is to keep the process moving for yourself and to set goals. People in DC/MD/VA don’t know how easy it is to purchase. We are regularly selling condominiums and townhomes to our $0 Down Buyer Workshops in the low, mid and high $200,000’s. These are price points that result in home payments less than DC’s average rent!”

Our $0 Down Buyer Workshops are free of charge and run twice per week at our offices at 913 Florida Ave. NW. Join us Tuesday nights at 5:30pm or on Saturday mornings at 10am. One-on-one and phone appointments are available to those with non-matching schedules.  RSVP or inquire using or call 202.299.9223.

Some of our successful recent Workshop sales for buyers are below!


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