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How Mortgage Rates Affect Buying Power?
September 16, 2022 | Posted by: Nathan Demers - Sunshine Coast Mortgage Broker
How Mortgage Rates Affect Buying Power?
Do You Know How Your Mortgage Rate Affects Buying Power?
To maximize your purchasing power, you should understand how interest rates impact your home buying power. With rising home values and rising interest rates, you may want to consider a private lender when looking at ways to finance your mortgage.
Purchasing power refers to how much home you can afford. It's based on the monthly payment rather than the purchase price. Rising interest rates mean a higher monthly interest payment. Conversely, with a lower interest rate, your monthly payment will be lower. In this case, you'll pay more for the same house if interest rates increase.
Ideally, you can jump on lower interest rates to find your dream home. When interest rates are high, it's important to find a flexible lender to help you meet your goals. Additionally, locking in your rate early in the lending process can help you avoid pending rate increases. Learn more about the different types of mortgage rates and how they affect your buying power, as well as the benefits of working with private lenders if you need to move quickly on your loan or have less than perfect credit.
What Are the Different Types of Mortgage Rates?
Mortgage brokers can help you find favourable interest rates. However, it's important to understand the difference between the main types of rates, fixed and variable, as follows:
- Fixed-rate mortgages lock in a rate that stays the same for the life of the loan. So, if you have a 15- or 30-year mortgage, you'll pay the same interest rate each month based on the outstanding principal amount.
- Variable-rate mortgages sometimes offer lower rates at the beginning of the loan term. Over time, rates may increase based on changes in the market. These mortgages are generally beneficial when overall rates are low. However, when interest rates increase, variable rates can cause your mortgage payments to fluctuate.
Most borrowers try to lock in fixed interest rates to avoid possible increases based on current economic conditions. This strategy can also increase your buying power.
How Do Rising Rates Affect the Home I Can Afford?
When you apply for a loan, the lender will determine what interest rate you qualify for. The interest rate impacts how much you can borrow, which determines what home you can afford.
With rising home values and rising interest rates, it's important to look at all your options for purchasing a home. Therefore, you may want to consider a private lender when looking at ways to finance your mortgage.
How Can a Private Lender Help?
Private lenders often approve loans more quickly than credit unions and banks. There's a more informal application process, and some private lenders have less stringent credit requirements, including a lower minimum credit score. Otherwise, private lenders operate similarly to financial institutions. You receive funding to buy a home and make monthly payments based on the principal and interest owed to the lender.
Here are some advantages to working with a private lender, particularly if you don't have a pristine credit history:
- Easier to qualify
- Flexible loan terms
- Use of purchased real estate as collateral
- Fast approval and access to the loan
Keep in mind that private lenders may charge higher interest rates. However, if you can't obtain a mortgage through traditional means, working with a reputable private lender can help you achieve your goals at the lowest possible interest rate. We may also have recourse to refinance the loan when interest rates drop.
Contact us today to find out how a private lender can help you increase your buying power and obtain reasonable mortgage rates.
I'm Nathan and I'm a BC Sunshine Coast Mortgage Broker helping people with New Home Purchases, Mortgage Renewals, Mortgage Refinancing as well as Mortgages for Rental Properties. If you need a mortgage in or around the Sunshine Coast of BC I can help.