When you’re buying a home, the purchase price often gets the most attention—but interest rates can be just as important, if not more so, when it comes to what you can truly afford. A small change in rates can have a surprisingly big effect on your monthly payment, loan amount, and overall budget.

Let’s break down exactly how interest rates impact your buying power so you can shop smarter.

What Is Buying Power?

Buying power is simply how much home you can afford based on your income, down payment, and monthly budget. Since most buyers finance their purchase with a mortgage, interest rates play a huge role in determining that number.

When rates are lower, you can afford a more expensive home for the same monthly payment. When rates rise, the opposite happens—you may need to adjust your budget or target price range.

Why Rates Matter More Than You Think

Even a small rate increase can add up over time because mortgage loans are repaid over decades. For example:

• At 6.5% interest, a $600,000 loan has a principal & interest payment of about $3,792/month.

• At 7.5% interest, that same loan jumps to about $4,196/month.

That’s over $400 more each month—or nearly $5,000 a year—for the exact same home.

How Rates Affect Loan Approval

Your lender uses something called a debt-to-income ratio (DTI) to decide how much they’ll loan you. Higher interest rates raise your monthly payment, which can push your DTI higher and reduce the maximum loan you qualify for.

Strategies to Maximize Your Buying Power

1. Shop for the Best Rate – Even a 0.25% difference can save you thousands over the life of your loan. Compare lenders and consider credit unions, mortgage brokers, and online banks.

2. Buy Down Your Rate – You can pay points up front to lower your interest rate. This can be a smart move if you plan to stay in the home long term.

3. Adjust Your Budget – If rates rise, look at slightly lower-priced homes or increase your down payment to keep your monthly payment where you want it.

4. Consider an ARM (Adjustable-Rate Mortgage) – These often start with a lower rate, but make sure you understand when and how it can change.

The Bottom Line

Interest rates directly influence how much home you can afford, sometimes even more than the list price itself. Staying informed, acting quickly when rates drop, and working with a knowledgeable agent and lender can make all the difference in securing the home you want within your budget.

If you’re thinking about buying, let’s talk through your options and run the numbers together—so you can make the most of your buying power in today’s market.