Mortgage rates are one of the most important variables in the housing’s equation. First time home buyers usually overlook the effect of mortgage rates to focus more on home prices.
The mortgage rate is used to calculate monthly payment. The higher the interest rate, the higher the monthly payment. The lower the interest rate, the lower the monthly payment.
What it means is that when interest rates rise, it lessens the buying power of buyers because it increases monthly payments which are used to decide how much money the lender will let the buyer borrow.
The historical graph below tracks the 30 Year Fixed rate mortgage since 1971. Historical data is from the Freddie Mac archives. The orange lines represents both "support and resistance" lines at 6% and 16%.
Same 30 Year Fixed rate mortgage since 1971 historical graph but with a "5 year" grouping. Historical data is from the Freddie Mac archives as well.
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