## Lower rates magnify borrowing power

You know that lenders look closely at your income and debt levels to determine how much they will lend you. High debts or low qualifying income can reduce your borrowing power. In addition, rising interest rates will slice your borrowing power because they increase your monthly payments per dollar borrowed. See these relationships in Table 3.7.

If, after looking at your income and bills, a lender says you can budget \$900 a month for your mortgage payment (principal and interest), you could borrow \$150,300 at 6 percent interest, but only \$102,600 at 10 percent. The figures in Table 3.7 again reinforce this point: To increase borrowing power and slash interest costs, find lower rate financing. How do you do that? Here are eight possibilities that you will learn in this and later chapters.

1. Consider an adjustable rate mortgage (ARM).
2. Call state and local housing finance agencies to find mortgage bond money.
3. Search for a lower-rate mortgage assumption or "subject to" purchase.
4. Buy from a builder or developer who offers below-market interest rates.
5. Weigh the benefit of paying points as a trade-off for a lower interest rate.
7. Use a wraparound or a blended rate mortgage.
8. Use lower rate/costs seller financing.

Table 3.7 How Much Can You Borrow at Various Interest Rates and Monthly Payments?

Monthly Payment

Table 3.7 How Much Can You Borrow at Various Interest Rates and Monthly Payments?

Monthly Payment

 (P&I, \$) 4% (\$) 6% (\$) 8% (\$) 10% (\$) 12% (\$) 400 83,800 66,800 54,500 45,600 38,900 600 125,800 100,200 81,700 68,400 58,300 750 157,200 125,200 102,200 85,500 72,900 900 188,700 150,300 122,600 102,600 87,500 1,000 209,600 166,900 136,200 114,000 97,200 1,250 262,100 208,600 170,300 142,500 121,500 1,500 319,100 250,400 204,400 171,000 148,800 2,000 425,466 333,783 272,465 227,943 198,350 Term = 30 years.
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