Real Estate

What Can You Afford in a Rising Rate Environment?

May 2, 2022
5 min.

Over the last couple of months, we’ve been lucky to speak with a lot of people who are looking to buy their first homes. The big recurring question right now is what impact will rising mortgage rates have on their prospects of homeownership. The unnerving headlines are everywhere.

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With rates rising north of 5.1% on a fixed 30 year mortgage as of the week ending April 30th, we are sensing that many of these families are feeling the pressure to buy a house now, fearing that they might never be able to buy a home again. We get it, it’s scary. With inflation at a 40-year high and the cost of everything rising, it seems like everyone’s personal finances are a bit out of whack.


As we like to say, the housing market has entered this wait and see period so there’s no need to rush into what might be the biggest purchase in your life. Stay the course, continue to save for your future down-payment, work on improving your credit score and finally, analyze your budget to own and manage a home. The reality is that rising rates will increase your monthly carrying cost, so it’s important to budget that in. Let’s illustrate some simple math.


Let’s say you were targeting a home at $350,000 and you plan to put down 20% as your down payment and use a $280,000 mortgage for the balance. A 30-year fixed rate mortgage on that $280,000 at 3% would have cost you $1,180/month. Now, a 30-year fixed rate mortgage on that $280,000 at 5.1% will cost you $1,520/month. That is an additional $340 in monthly carrying cost, solely attributable to rising rates. We think it is important to adjust one’s expectations entering this new market.


There is no one size fits all solution to these changes in the home financing environment and no one can predict the future. However, one can be proactive by preparing - that starts with a thorough budgeting of one’s finances. The question one should be asking themselves is what is a comfortable monthly payment? 

A simple heuristic we like to use is to not spend above 35% of your gross monthly income on housing. And remember, monthly carrying costs don’t just include mortgage payments, but also monthly property taxes, property insurance, and repairs/maintenance. Again, the 35% rule is not set in stone, but rather is a simple framework that’s worked for families in different markets and price ranges around the country.


If you need help thinking about how to budget for a future home purchase, please reach out to us at We’re here to be a sounding board to soon-to-be homeowners at any point on their journey.

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