Do Interest Rates Affect My Borrowing Power?
Interest Rates actually have a huge impact on your borrowing power with the bank and here's the reason why.
Your borrowing power is based on how much you can afford monthly which has a lot to do with your mortgage payment. If interest rates increase or decrease it will alter your mortgage payment. So that will change the amount of a mortgage you can get which is the amount you can borrow.
Let's assume you can borrow $200,000 based on a 6% interest rate. For easy numbers we will assume that's your exact borrowing power which is a mortgage payment of $1200.
Well if interest rates crept up to 7% your new mortgage payment would be $1330 per month. So if you can borrow $1200 per month then you will need to go down to $180,000 at 7% to get $1197 per month and stay within your borrowing power.
As you can see, interest rates drastically affect your mortgage payment and borrowing power with the bank. If you can negotiate a lower rate then try as hard as you can. Just don't let the interest rates go up before you buy your home.
You can use my mortgage calculator to figure out those mortgage payments above. You can also keep the calculator handy to check what your new payment will be if interest rates change a little bit. Remember that every little bit helps when your talking about a 30 year mortgage.
