How much can you afford?

As the prices of homes changes, so does the mortgage rates. But, what does that mean for your money?

To explain, let’s take a look at an Affordability Analysis. Assume that you have fallen in love with Lake Forest and want to be on the lake. You want to keep your mortgage at about $2400 a month and need to figure out the amount you can spend on a home.

Currently, the interest rate is at 5.5%, but you are concerned about it changing and want to see what will happen if it does. So, you sit down with your real estate agent (me!) and we discuss your options, using a chart similar to this. (click to enlarge)

affordability

Basically, it explains the amount of money you will pay on a house given the interest rate and the value of the loan.

So, the $2,400 a month payment , if the interest rate is at 5.5% will allow you to borrow $417,000. If the mortgage rate were to increase to 6.5%, you would now only be able to borrow $375,000 to stay below that $2,400 mortgage. But, if the interest rates were to improve and drop down to 4.5%, you could actually borrow up to $458,700 and still be paying less than $2,400 a month.

Of course, with any market changes, it is always best to discuss it with your realtor. Give me a  call to put together a chart that fits your budget and lets see what we can do!

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