---
title: How a Change in Mortgage Rate Impacts Your Homebuying Budget
description: Mortgage rates are on the rise this year, but they’re still incredibly low compared to the historic average. Anytime there’s a change in the mortgage rate, it affects what you can afford to borrow when you’re buying a home.
---

[First Federal Bank Blog ](https://blog.ffbf.com)

# [How a Change in Mortgage Rate Impacts Your Homebuying Budget](https://blog.ffbf.com/how-a-change-in-mortgage-rate-impacts-your-homebuying-budget)

 Written by [First Federal Bank](https://blog.ffbf.com/author/first-federal-bank) | April 6, 2021 5:41:19 PM Z

Mortgage rates are on the [rise](https://www.simplifyingthemarket.com/2021/03/09/how-upset-should-you-be-about-3-mortgage-rates/?a=629022-2474dd2c577f9b9a47829ca925671596) this year, but they’re still incredibly low compared to the historic [average](https://www.simplifyingthemarket.com/2021/02/19/home-mortgage-rates-by-decade-infographic/?a=629022-2474dd2c577f9b9a47829ca925671596). However, anytime there’s a change in the mortgage rate, it affects what you can afford to borrow when you’re buying a home. As Sam Khater, *Chief Economist* at *Freddie Mac*, [shares](https://freddiemac.gcs-web.com/node/22396/pdf):

> *“**Since January, mortgage rates have increased half a percentage point** from historic lows and home prices have risen, leaving potential homebuyers with less purchasing power.” (See graph below):*

<https://files.simplifyingthemarket.com/2021/03/29130759/20210330-MEM-Eng-1.png?a=629022-2474dd2c577f9b9a47829ca925671596>

When buying a home, it’s important to determine a monthly budget so you can plan for and understand what you can [afford](https://www.simplifyingthemarket.com/2021/02/11/47-of-new-buyers-surprised-by-how-affordable-homes-are-today/?a=629022-2474dd2c577f9b9a47829ca925671596). However, when you need to stick to your budget, even a small increase in the mortgage rate can make a big difference.

According to the *National Association of Realtors* (NAR), today, the median existing-home price is [$313,000](https://www.nar.realtor/newsroom/existing-home-sales-descend-6-6-in-february). Using $300,000 as a simple number close to the median [price](https://www.simplifyingthemarket.com/2021/03/24/why-you-should-think-about-listing-prices-like-an-auctions-reserve-price/?a=629022-2474dd2c577f9b9a47829ca925671596), here’s an example of how a change in mortgage rate impacts your monthly principal and interest payments on a home.<https://files.simplifyingthemarket.com/2021/03/29130757/20210330-MEM-Eng-2.png?a=629022-2474dd2c577f9b9a47829ca925671596>

If, for example, you’re getting ready to buy a home and know your budget allows for a monthly payment of $1200-1250 (marked in gray on the table above), every time the mortgage rate ***increases***, the loan amount has to ***decrease*** to keep your monthly cost in range. This means you may have to look for lower-priced homes as mortgage rates go up if you want to be able to maintain your budget.

In essence, it’s ideal to close on a home loan when mortgage rates are low, so you can afford to borrow more money. This gives you more purchasing power when you buy a home. Mark Fleming, *Chief Economist* at *First American*, [explains](https://blog.firstam.com/economics/the-good-the-bad-and-the-maybe-ahead-of-spring-home-buying):

> *“Monthly payments have remained manageable despite soaring home prices because of **low mortgage rates**. In fact, monthly payments remain below the $1,250 to $1,260 range that we saw in both fall 2018 and spring 2019, but they are on track to hit that level this spring.*
> 
> *Although they remain low**, mortgage rates have begun to increase and are expected to rise further later in the year**, thus affordability will test buyer demand in the months ahead and likely help slow the pace of price growth.”*

Today’s mortgage rates are still very low, but experts [project](https://www.simplifyingthemarket.com/2021/02/18/will-low-mortgage-rates-continue-through-2021/?a=629022-2474dd2c577f9b9a47829ca925671596) they’ll continue to rise modestly this year. As a result, every moment counts for homebuyers who want to secure the lowest mortgage rate they can in order to be able to afford the home of their dreams.

### **Bottom Line**

Thanks to low mortgage rates, the spring housing market's in bloom for buyers – but these favorable conditions may not last for long. Let’s connect today to start the homebuying process while your purchasing power is still holding strong.

[View full post](https://blog.ffbf.com/how-a-change-in-mortgage-rate-impacts-your-homebuying-budget)

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