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chart showing rising interest rates

How Much House Can I Afford When Interest Rates Increase?

Interest Rate Increases

As you know, 2022 has been murder on interest rates. With the Federal Reserve actively trying to drive down inflation by increasing interest rates, mortgage rates have more than doubled so far in 2022.

And there’s more coming.

So let’s imagine a scenario. You’re in the market for a house, you’ve been pre-approved for a loan to pay $x for a house at y% interest rate.

Then along comes the Fed and they fed-things up, and suddenly the interest rates are higher.

How Much House Can I Afford When Interest Rates Change?

This is an important question, because you’re actually not pre-approved to be able to buy a house for a certain amount. You’re pre-approved for a monthly mortgage payment of a certain amount.

So if the mortgage interest rate increases by half a point (say from 7% to 7.5%, for example,) your mortgage payment will increase because of that higher interest rate. As a result, assuming you can’t come up with some more money to increase your down payment, the amount you can spend on a house just decreased.

Here’s the key question – by how much?

You can use our mortgage calculator to figure it out precisely, but here’s a rule of thumb that will help.

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The amount of house you can afford goes down by about 5% for every half-a-point interest rates increase.

So, if you were preapproved for a mortgage on a house budget of $400,000, if interest rates increase by half a point (from 7% to 7.5% for example), now your budget is about $380,000 if you need to keep your monthly mortgage payments about the same. (To figure out the math on that – multiply $400,000 by 0.5, then subtract that amount from $400,000)

If you want to be a bit more specific, here are the percentage amounts your house price budget needs to change if interest rates change by half a point:

If the interest rate                       Your house budget amount should change
changes by 0.5% to                     by this amount to keep the same monthly payment

     5.5%                                                 5.45%

     6.0%                                                 5.30%

     6.5%                                                 5.14%

     7.0%                                                 5.00%

     7.5%                                                  4.85%

     8.0%                                                  4.71%

     8.5%                                                   4.57%

     9.0%                                                   4.44%

     9.5%                                                    4.31%

    10.0%                                                   4.18%

(It’s sad to think that I might need to have 10% interest rate on that chart. Who would have thought that was even a possibility after two decades of low-interest rates.)

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Remember, this chart works both ways. If interest rates change from 7.0% to 7.5%, in order to keep your monthly mortgage payments the same, you should bid at least 4.85% lower on the house. 

The same thing will work when interest rates hopefully start dropping. When interest rates drop from 7.0% to 6.5%, you can now bid up to 5.0% more and still keep your monthly mortgage payment the same.

This raises another question:

How Much House Can I Afford At Different Interest Rates?

The answer to this question is more complicated. I will show you in a moment how much you can afford in your interest and principal based on the house payment you want to have. However, this amount won’t be complete because, in addition to interest and principal, your mortgage payment will probably include other amounts like property taxes, homeowner’s insurance, private mortgage insurance, and amortized closing costs. So you will need to add those amounts to the payment shown here to find your actual mortgage payment.

Also, remember that the amounts shown are the maximum amount of your loan. The amount you can pay for the house will be that amount plus whatever down payment you will be paying.

But, given those caveats, here are the amounts you can afford at multiple different interest rates, based on the interest and principal payment you are targeting:

Mortgage Calculator

How Much House Can I Afford? – 30 Year Mortgage

Interest Rate
House Payment   5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0%
$1,000 $176,122 $166,792 $158,211 $150,308 $143,018 $136,283 $130,054 $124,282 $118,927 $113,951
$1,500 $264,183 $250,187 $237,316 $225,461 $214,526 $204,425 $195,080 $186,423 $178,390 $170,926
$2,000 $352,244 $333,583 $316,422 $300,615 $286,035 $272,567 $260,107 $248,564 $237,853 $227,902
$2,500 $440,304 $416,979 $395,527 $375,769 $357,544 $340,709 $325,134 $310,705 $297,317 $284,877
$3,000 $528,365 $500,375 $474,632 $450,923 $429,053 $408,850 $390,161 $372,846 $356,780 $341,852
$3,500 $616,426 $583,771 $553,738 $526,076 $500,562 $476,992 $455,188 $434,987 $416,243 $398,828
$4,000 $704,487 $667,166 $632,843 $601,230 $572,071 $545,134 $520,215 $497,127 $475,707 $455,803
$4,500 $792,548 $750,562 $711,949 $676,384 $643,579 $613,276 $585,241 $559,268 $535,170 $512,779
$5,000 $880,609 $833,958 $791,054 $751,538 $715,088 $681,417 $650,268 $621,409 $594,633 $569,754
$5,500 $968,670 $917,354 $870,160 $826,692 $786,597 $749,559 $715,295 $683,550 $654,097 $626,730
$6,000 $1,056,731 $1,000,750 $949,265 $901,845 $858,106 $817,701 $780,322 $745,691 $713,560 $683,705
$6,500 $1,144,791 $1,084,145 $1,028,370 $976,999 $929,615 $885,843 $845,349 $807,832 $773,023 $740,680
$7,000 $1,232,852 $1,167,541 $1,107,476 $1,052,153 $1,001,123 $953,984 $910,376 $869,973 $832,487 $797,656
$7,500 $1,320,913 $1,250,937 $1,186,581 $1,127,307 $1,072,632 $1,022,126 $975,402 $932,114 $891,950 $854,631
$8,000 $1,408,974 $1,334,333 $1,265,687 $1,202,461 $1,144,141 $1,090,268 $1,040,429 $994,255 $951,413 $911,607
$8,500 $1,497,035 $1,417,729 $1,344,792 $1,277,614 $1,215,650 $1,158,410 $1,105,456 $1,056,396 $1,010,877 $968,582
$9,000 $1,585,096 $1,501,125 $1,423,897 $1,352,768 $1,287,159 $1,226,551 $1,170,483 $1,118,537 $1,070,340 $1,025,557
$9,500 $1,673,157 $1,584,520 $1,503,003 $1,427,922 $1,358,667 $1,294,693 $1,235,510 $1,180,678 $1,129,803 $1,082,533
$10,000 $1,761,218 $1,667,916 $1,582,108 $1,503,076 $1,430,176 $1,362,835 $1,300,536 $1,242,819 $1,189,267 $1,139,508

 

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Here’s how to read this chart. First, find the monthly house payment you are targeting on the left side. Then go across the chart to the interest rate you’ll be paying. The number at the junction of those two is the maximum amount of the loan you could get to have that be your house payment (with the caveats mentioned above.)

So, if your targeted monthly payment for principal and interest is $3,000 and the current interest rate is 7.0%, the maximum amount of your loan would be $450,923. If you were going to make a 20% down payment, then your total budget for the house would be $450,923 * 1.2 = $541,107.

Here’s the same table for a 20 year loan:

How Much House Can I Afford? – 20 Year Mortgage

Interest Rate
House Payment.  5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0%
$1,000 $145,373 $139,581 $134,125 $128,983 $124,132 $119,554 $115,231 $111,145 $107,281 $103,625
$1,500 $218,059 $209,371 $201,188 $193,474 $186,198 $179,331 $172,846 $166,717 $160,922 $155,437
$2,000 $290,745 $279,162 $268,250 $257,965 $248,264 $239,109 $230,462 $222,290 $214,562 $207,249
$2,500 $363,432 $348,952 $335,313 $322,456 $310,330 $298,886 $288,077 $277,862 $268,203 $259,062
$3,000 $436,118 $418,742 $402,375 $386,948 $372,396 $358,663 $345,693 $333,435 $321,843 $310,874
$3,500 $508,804 $488,533 $469,438 $451,439 $434,462 $418,440 $403,308 $389,007 $375,484 $362,686
$4,000 $581,491 $558,323 $536,500 $515,930 $496,529 $478,217 $460,923 $444,580 $429,124 $414,498
$4,500 $654,177 $628,113 $603,563 $580,421 $558,595 $537,994 $518,539 $500,152 $482,765 $466,311
$5,000 $726,863 $697,904 $670,625 $644,913 $620,661 $597,771 $576,154 $555,725 $536,405 $518,123
$5,500 $799,550 $767,694 $737,688 $709,404 $682,727 $657,549 $633,770 $611,297 $590,046 $569,935
$6,000 $872,236 $837,485 $804,750 $773,895 $744,793 $717,326 $691,385 $666,870 $643,686 $621,748
$6,500 $944,922 $907,275 $871,813 $838,386 $806,859 $777,103 $749,000 $722,442 $697,327 $673,560
$7,000 $1,017,609 $977,065 $938,875 $902,878 $868,925 $836,880 $806,616 $778,015 $750,967 $725,372
$7,500 $1,090,295 $1,046,856 $1,005,938 $967,369 $930,991 $896,657 $864,231 $833,587 $804,608 $777,185
$8,000 $1,162,981 $1,116,646 $1,073,000 $1,031,860 $993,057 $956,434 $921,847 $889,160 $858,248 $828,997
$8,500 $1,235,668 $1,186,437 $1,140,063 $1,096,351 $1,055,123 $1,016,211 $979,462 $944,732 $911,889 $880,809
$9,000 $1,308,354 $1,256,227 $1,207,125 $1,160,843 $1,117,189 $1,075,989 $1,037,078 $1,000,305 $965,529 $932,622
$9,500 $1,381,040 $1,326,017 $1,274,188 $1,225,334 $1,179,255 $1,135,766 $1,094,693 $1,055,877 $1,019,170 $984,434
$10,000 $1,453,726 $1,395,808 $1,341,250 $1,289,825 $1,241,321 $1,195,543 $1,152,308 $1,111,450 $1,072,810 $1,036,246

And for a 15-year loan:

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How Much House Can I Afford? – 15 Year Mortgage

Interest Rate
House Payment   5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0%
$1,000 $122,387 $118,504 $114,796 $111,256 $107,873 $104,641 $101,550 $98,593 $95,765 $93,057
$1,500 $183,580 $177,755 $172,195 $166,884 $161,810 $156,961 $152,325 $147,890 $143,647 $139,586
$2,000 $244,773 $237,007 $229,593 $222,512 $215,747 $209,281 $203,099 $197,187 $191,530 $186,115
$2,500 $305,966 $296,259 $286,991 $278,140 $269,684 $261,601 $253,874 $246,484 $239,412 $232,644
$3,000 $367,160 $355,511 $344,389 $333,768 $323,620 $313,922 $304,649 $295,780 $287,294 $279,172
$3,500 $428,353 $414,762 $401,787 $389,396 $377,557 $366,242 $355,424 $345,077 $335,177 $325,701
$4,000 $489,546 $474,014 $459,186 $445,024 $431,494 $418,562 $406,199 $394,374 $383,059 $372,230
$4,500 $550,739 $533,266 $516,584 $500,652 $485,430 $470,883 $456,974 $443,670 $430,942 $418,758
$5,000 $611,933 $592,518 $573,982 $556,280 $539,367 $523,203 $507,748 $492,967 $478,824 $465,287
$5,500 $673,126 $651,769 $631,380 $611,908 $593,304 $575,523 $558,523 $542,264 $526,707 $511,816
$6,000 $734,319 $711,021 $688,778 $667,536 $647,241 $627,844 $609,298 $591,560 $574,589 $558,345
$6,500 $795,512 $770,273 $746,177 $723,164 $701,177 $680,164 $660,073 $640,857 $622,471 $604,873
$7,000 $856,706 $829,525 $803,575 $778,792 $755,114 $732,484 $710,848 $690,154 $670,354 $651,402
$7,500 $917,899 $888,776 $860,973 $834,420 $809,051 $784,804 $761,623 $739,451 $718,236 $697,931
$8,000 $979,092 $948,028 $918,371 $890,048 $862,987 $837,125 $812,398 $788,747 $766,119 $744,460
$8,500 $1,040,285 $1,007,280 $975,770 $945,676 $916,924 $889,445 $863,172 $838,044 $814,001 $790,988
$9,000 $1,101,479 $1,066,532 $1,033,168 $1,001,304 $970,861 $941,765 $913,947 $887,341 $861,883 $837,517
$9,500 $1,162,672 $1,125,783 $1,090,566 $1,056,932 $1,024,798 $994,086 $964,722 $936,637 $909,766 $884,046
$10,000 $1,223,865 $1,185,035 $1,147,964 $1,112,560 $1,078,734 $1,046,406 $1,015,497 $985,934 $957,648 $930,574

How Much House Can I Afford? It Depends!

Ultimately how much house you can afford is based on several key factors:

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  • Mortgage interest rates
  • The length of your loan
  • The amount of your down payment
  • The amount you need to escrow each month for property taxes and homeowner’s insurance
  • Your required private mortgage insurance
  • The amount of closing costs that you amortize into the loan

The key is that ultimately, your mortgage lender is considering the amount you will need to pay for your monthly mortgage payment. Everything listed above affects that amount. 

Your lender will look at your income and monthly expenses, credit rating, and several other factors to determine whether you can afford to pay the monthly mortgage payment required for your loan amount and will use that as the basis for approving your loan.

So, it’s best to get pre-approved for a mortgage loan before shopping for a house, so you know what amount you could afford, and don’t fall in love with a house that’s above that amount.

Then, if mortgage rates change during the process, the information provided here will help you adjust your budget accordingly, because you’re not actually pre-approved for a certain house price, you’re pre-approved for a certain monthly mortgage payment.

Questions? We would love to answer them and help you determine the right budget for your house-shopping process!  Click here to get connected with a mortgage professional we trust!

About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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