Everyone knows mortgage rates matter. Almost nobody has a concrete feel for how much a rate move actually costs. Here is a table you can memorize.
At a fixed $2,500/month principal-and-interest budget (typical for a $120k income at 28% front-end DTI minus taxes/insurance), on a 30-year loan:
- 5.0% rate: you can borrow ~$466,000. - 6.0% rate: you can borrow ~$417,000. - 7.0% rate: you can borrow ~$376,000. - 8.0% rate: you can borrow ~$341,000.
Every 1% rate increase shaves roughly $35k–$50k of purchasing power off your budget. From 5% to 8%, you lose $125,000 of home — at the same monthly payment.
Why this feels unfair. Because it is. On a 30-year loan, the first decade is almost all interest. A buyer at 8% in their first year is paying $22,700 in interest on a $341k loan vs a 5% buyer paying $23,300 in interest on a $466k loan. Same interest dollars, 37% less house.
What this changes in practice.
When rates are high (above 6%): Smaller down payments are more penalized. PMI + high rate = painful carrying cost. Conversely, seller concessions (rate buydowns, credits) are more valuable because 1% on a $400k loan is worth $240/month.
When rates are low (below 5%): Buy more house than feels comfortable on paper. Low rates will not last forever, and a 30-year fixed locks them in. Rent-vs-buy math tips hard toward buying.
When rates are falling: Do not wait. A 0.25% drop saves a typical buyer ~$60/month — about a tenth of the savings you lose by waiting 6 months while prices rise 3%.
The refi option. "Marry the house, date the rate" is the cliché, and it is mostly true. If you can afford today's payment at today's rate, you can always refinance when rates fall. You cannot, however, re-buy the house if prices jump 15% while you wait for rates.
Just do not count on rates falling. They have stayed high longer than any projection said they would for the past 3 years running.