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Rising mortgage rates threaten homeowners

You always dreamed of buying your first home, and at the current rates, mortgages are affordable. You know that rates change, but do you know how much those small changes really impact how much you can borrow?

With rising mortgage rates, you may find that you aren't able to borrow as much money for a home as you expect. As of March 11, the 30-year-mortgage rate was 4.6 percent, the highest it has been since 2014.

How does that affect buyers? It means you get less for your money. With higher mortgage rates, you'll have to save more money for a down payment. Additionally, you may have to look at less expensive homes if you can't afford the repayment plans offered at higher rates. Each small increase in mortgage rates changes how much you can afford to borrow significantly.

The current average cost of buying a home with a mortgage in America is $200,000, which means that a 30-year mortgage would cost you around $1,025 per month including the interest and principal. If the interest rates go up only slightly, the changes raise how much you have to pay each month for a lower-valued mortgage. For example, the $200,000 rate for your mortgage is based on a 4.6 percent rate, whereas a 5.10 percent rate only allows you to borrow $188,837 and still have the $1,025 payment. If you were interested in a home for $200,000 but can't afford more than the $1,025 payment, you'd have to reassess your situation and potentially look for a new home.

With mortgage rates ever-changing, it's a good idea to look them up frequently and to apply for a mortgage when rates are low.

Source: The Motley Fool, "How Rising Mortgage Rates Affect How Much You Can Borrow," Jordan Wathen, March 11, 2018

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