How do mortgage rate affect house prices?

Mortgage rate is the rate of interest charged on mortgage. Mortgage rate are determine by lender and can be either fixed, staying the same for the term of the mortgage, or variable, fluctuating with a benchmark interest rate. Lenders will tell you how much you are qualified to borrow – that is, how much they are willing to lend you.

Mortgage is the loan given at the time of buying or purchasing the property. Mortgage loan consists of two forms of loan rate one fixed rate and another one is adjustable rate as I mentioned above.

Key Points

Need to understand about these two forms of loan completely to make a correct decision of mortgage loan

Interest rate is the percentage of amount for the given principal – the amount loaned, charged by the lender to the borrower.

Interest rate depends on some factors on mortgage includes the state of econoy of the boorrower and your personal circumtences.

Factors that influence the interest rate of mortgages

There are many factors that impact or influence the interest rate of mortgages. Lender will first consider the mortgage cost or the general cost of borrowing in the economy, which is based on the state of the economy and government monetary policy. Personal factors, such as credit history, income, and the type and size of the loan you are after, will then come into play to determine how much you’ll be charged to get a loan to buy a house.

Does mortgage rate affects house prices?

The recent hike in home loan interest rates by banks and housing finance companies – following an off-cycle repo rate hike by the RBI in May – has come at a time when the real estate sector has just started picking up momentum after a couple of years.

According to industry experts, a 1 per cent hike in housing loan interest rate reduces house purchase affordability by 7.4%.

“At a time when the real estate sector had just begun to pick up, the increase in home loan interest rates, even though negligible, would act as a psychological barrier for the buyers. Coupled with the increase in input costs that to an extent had forced developers to increase the prices of property, it would act as a dampener to the buyer’s spirit, especially the ones looking for homes in the affordable segment,” says Sanjay Sharma, Director, SKA Group.

Higher interest rates have forced the housing market into a “difficult correction” that should force it into balance after years of exuberant demand and limited supply and crushed demand for homes because buyers are now paying significantly more to get a mortgage on the same-priced home.


Day by day the land market rate got increses, as market rate increses, demand for mortgage increses and as mortgage increses mortgage rate got increses. All these are interconected and propotional to one another. By all these things the buyer got effecting, as it takes much time to decide and to make savings of good budget, plan and strategy to buy a property, the price of the property reach out of the hand.

As they go for mortgage, mortgage rate may vary as of market that will effect the customer budget plan and by this house price may vary, this shows and as I explained in the article, mortgage rate not only effecting the house price it also effecting the real estate business.