Do interest rates matter when purchasing a home?

There has been A LOT of talk about interest rates and the housing market lately. I have even heard people saying that we are at the peak of the market and a bubble is going to burst. On the surface, it is a bit concerning to hear these things and see that interest rates have increased so much and that houses are seemingly becoming less and less affordable.

However, I would argue that interest rates and home values aren’t the most important things to consider when buying a home . . .

One of the financial metrics that I measure with my clients is their Debt Rate score (total debt payments divided by total income). I utilize a powerful financial planning tool to measure multiple different financial metrics for my clients. You can check out more HERE. This allows me to provide objective and targeted advice and benchmark my client’s scores. We look at YOUR situation and YOUR financial health, and we don’t get distracted by all the other noise.

I believe that your total debt payments in relation to your total income (Debt Rate score) is one of the most important metrics when evaluating a home purchase.

Many of my clients have moved within the past several months (all leaving Illinois!!) and therefore have seen their mortgage interest rates increase from the 3% range to more than 5%--this is a huge increase! However, interest rates and home values did not stop them from making a decision that was important to them. They didn’t try to time the housing market or interest rates—they moved because it made the most sense for their family at that point in time.

One of the main financial projects I work on is helping clients focus on their goals and their Elements financial health scores—not the whims of the real estate and interest markets.

In some cases, I have helped clients to see that they can afford more than they realized and make a home purchase with confidence knowing that their Debt Rate score was at a healthy and manageable level.

Now at times, some adjustments may have to be made to afford the home, like picking up more hours and making more money, or decreasing travel or restaurant budgets. But if at the end of the day living in a specific location is of utmost importance to be close to friends, family, church, etc. then it isn’t quite as hard to make those adjustments.

If you find yourself in a similar situation, and you’re evaluating making a move in your life, I would love to have a conversation and see what your personal Elements scores are and how that should shape your decision-making. At the end of the day, I want my clients to make wise decisions with confidence and peace of mind.

If you’re interested in learning more about this approach and would like to connect, feel free to schedule a 20-minute introduction call to see if I can help.