How Do Mortgage Rates Affect My Buying Power?

Mortgage rates directly determine how much home you can afford. At 6.5%, a $2,200 monthly payment buys you approximately a $350,000 home with 20% down. At 7.5%, that same $2,200 payment only buys about $320,000. Each 1% increase in rates reduces your buying power by roughly $40,000.

This is why rate changes matter so much, especially in competitive price ranges. A buyer shopping at $350,000 who gets priced out by a rate increase may have to look at different neighborhoods, smaller homes, or properties that need more work.

The reverse is also true: if rates drop, your buying power increases without you needing a raise or a bigger down payment. Every half-point rate drop puts a more expensive home within reach for the same monthly payment.