Interest Rates Explained: What They Mean for Your Buying Power

When it comes to buying a home, the interest rate on your mortgage is one of the biggest factors that determines how much house you can actually afford. Even a small change in rates can make a huge difference in your monthly payment—and ultimately in the price range of homes you can shop for.

💡 What Is an Interest Rate?

An interest rate is the cost of borrowing money from a lender. Expressed as a percentage, it tells you how much you’ll pay the bank each year on top of the amount you borrowed. For example, if you take out a $300,000 loan at a 6% interest rate, you’ll pay significantly more over the life of the loan than if your rate was 5%.

📉 How Interest Rates Affect Buying Power

Your “buying power” is essentially how much home you can afford at a given monthly payment. Since most buyers focus on the monthly cost (rather than the total loan amount), higher rates reduce buying power, while lower rates increase it.

Here’s a simple example using a $350,000 loan with a 30-year fixed mortgage:

👉 That’s a difference of $334 per month—or over $4,000 per year—just from a 1.5% change in the interest rate.

🔑 Why Rates Change

Interest rates aren’t fixed forever—they move up and down based on a variety of economic factors:

• Inflation and the overall economy

• Federal Reserve policies

• Supply and demand for mortgage-backed securities

• Lender competition

🏡 What This Means for Buyers Today

If you’re shopping in today’s market, don’t let rising or fluctuating rates discourage you. There are strategies to protect your buying power, including:

• Rate Buydowns: Some sellers or builders will offer credits to lower your interest rate for the first few years. Understanding Rate Buydowns

• Adjustable-Rate Mortgages (ARMs): These can offer lower initial payments if you don’t plan to stay in the home long-term.

• Working with a Trusted Lender: Getting pre-approved and locking your rate at the right time can save you thousands.

✨ Final Thoughts

Understanding interest rates is the key to making smart home-buying decisions. Even a half-percent change in rates can shift your budget dramatically. That’s why it’s important to stay informed, work with a knowledgeable real estate agent, and partner with a lender who can help you find the best financing option.

👉 Thinking about buying a home in Minneapolis or the surrounding suburbs? Let’s connect—I’ll walk you through the numbers and show you how today’s interest rates affect your buying power.

GET YOUR FREE-HOMEBUYERS GUIDE HERE ➡️ Get your guide

By: Mark Comparato

Broker Associate- Call The Comps Real Estate Team at REAL BROKER, LLC