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How Rising Mortgage Rates Affect How Much You Can Borrow

As interest rates rise, homebuyers are discovering that they can't afford as much home as they could have just a few years ago. Should mortgage rates continue higher, buyers may have to save more for a larger down payment or simply buy less expensive homes, as each marginal increase in rates has a big impact on how much you can borrow. The math behind mortgages Typically, people use a mortgage amount and interest rate to calculate a payment. With a 30-year mortgage at 4.6%, borrowing $200,000 would set you back about $1,025 per month in principal and interest payments. The chart below shows how changes in the interest rate affect how much you can borrow. This approximation can be handy when you think about how a change in interest rates might affect your ability to afford a home in a certain price range. If you wanted to borrow $250,000, but mortgage rates rise 1%, you might have to start shopping for a mortgage around $225,000 or increase your down payment by about $25,000 to keep the monthly payment the same. Obviously, interest rates aren't the only thing that affects home prices. Should rates rise to such a degree that monthly mortgage payments rise faster than incomes, rates would act as a drag on home price appreciation. The $16,122 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings.