When you are pre-approved for a home loan, it is based on a certain monthly payment. The interest rate is assumed (in addition to other amounts such as taxes and insurance). Interest rate fluctuations affect Florida mortgage qualification since it impacts the principal and interest part of the monthly payment. It is important for home buyers to understand this because a fluctuation in interest rates may impact maximum purchase price.
Interest Rate Fluctuations
Interest rates can adjust on a continual basis. At certain times, they might even change more than once on the same day. As a home buyer, you may not know what your specific interest rate will be until you are under contract to purchase a home, know the settlement date, and lock in your interest rate. Thus, there is some uncertainty, particularly for price sensitive buyers. It is useful to know what estimated interest rate was used to determine the pre-approval and to keep the pre-approval up-to-date. When interest rates are constantly or dramatically moving, connect with your loan officer prior to preparing an offer on a home to confirm that you still qualify for the purchase price.
Interest Rate Fluctuations Affect Florida Mortgage Qualification
Mortgage payments typically include principal, interest, municipal taxes, property insurance, and mortgage insurance (if applicable). For this discussion, we will only discuss the principal and interest part of the payment. Assume that a borrower qualifies for a $300,000 purchase price based on a 30-year home loan, 3.5% down payment, and 5% interest rate. The principal and interest monthly payment is roughly $1554. If the interest rate rises by 0.5%, that same borrower will then qualify for only $283,638. That is a significant in the list price, which will lead to a different quality of home. Alternatively, if interest rates lower by 0.5%, the maximum price increases to $317,843. The figures below detail the impact of additional changes for this same buyer based on a mortgage principal and interest payment of $1554:
| Interest Rate | Loan Amount | Down Payment | Sale 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 Buyer
Be sure to ask your loan officer regarding the maximum monthly 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 different variables to the total payment: interest rate, real estate taxes, property insurance, and mortgage insurance. If you plan to select a property near the qualification limit, then it will be extremely important to watch interest rates. Your mortgage consultant and real estate representative can help with these calculations and offer other information on how interest rate fluctuations affect Florida mortgage qualification.
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