Mortgage rates have risen dramatically in recent weeks. And if you're looking to buy a home, you may be wondering what this means for you. Here's some information to help you make an informed decision when it comes to buying a property.

The Impact of Rising Mortgage Rates

As mortgage rates rise, they impact your purchasing power by raising the cost of buying a home and limiting how much you can comfortably afford. Here’s how it works.

Let’s assume you want to buy a $400,000 home (the median-priced home according to the National Association of Realtors is $389,500). If you’re trying to shop at that price point and keep your monthly payment about $2,500-2,600 or below, here’s how your purchasing power can change as mortgage rates climb (see chart below). The red shows payments above that threshold and the green indicates a payment within your target range.

As the graph demonstrates, as interest rates rise, the amount you can afford to borrow reduces, which may require you to consider properties in a different price range. Therefore, it is essential to engage with a real estate professional to comprehend how mortgage rates affect your monthly mortgage payment for various home loan amounts.

Are Mortgage Rates Going To Go Down?

You could be considering delaying your purchase because of the increase in mortgage rates and the associated decline in purchasing power. According to Realtor.com, these are the possible future rates:

“Many homebuyers likely winced . . . upon hearing that the Federal Reserve yet again boosted its short-term interest rates by three-quarters of a percentage point—a move that’s pushing mortgage rates through the roof. And the already high rates are just going to get higher.”

So, if you’re waiting for mortgage rates to drop, you may be waiting for a while as the Federal Reserve works to get inflation under control.

And if you’re considering renting as your alternative while you wait it out, remember that’s going to get more expensive with time too. As Nadia Evangelou, Senior Economist and Director of Forecasting at the National Association of Realtors (NAR), says:

“There is no doubt that these higher rates hurt housing affordability. Nevertheless, apart from borrowing costs, rents additionally rose at their highest pace in nearly four decades.”

In general, it is true that it is more expensive to buy a home today than it was last year, but the same is true for renting. This means that you will pay more in either case. The difference is that with homeownership, you acquire equity over time, which helps to increase your net worth. The question now is, what makes the most sense for you?