How Falling Rates Could Let You Afford a Bigger Home for $2,200 a Month
Key Takeaways
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A 0.5% drop in a 30-year fixed mortgage rate means homebuyers could afford roughly 5% more house without their monthly payment going up.
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Rates have fallen steadily this year from their 2025 peak of more than 7% in January, but they’re still higher than a year ago.
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Lower mortgage rates could bring more buyers into the housing market, driving up home prices in the process, one expert warned.
A lower mortgage rate can save homebuyers thousands of dollars over the years, even decades, it takes to pay off a home loan. However, instead of paying less per month, a lower mortgage rate could also allow you to afford a bigger house while keeping your monthly payment roughly the same.
For example, say you’re interested in a house that costs $440,000, about the median home sale price in the U.S. last month. After a 20% down payment, with a 30-year fixed mortgage rate of 6.59%, you’d pay roughly $2,246 per month (excluding property taxes and fees).
If the rate fell to 6.09%, you may be able to afford a $464,000 house while your monthly payment remained just above $2,200 a month. If it dropped to 5.59%—a rate not seen since August 2022—that same monthly payment could apply to a house worth $489,000. Of course, the down payment on each of these houses would be different. But if keeping your monthly payment at a set amount is your goal, then the drop in mortgage rates could help you increase how much of a house you can afford.
| Home Price | Down Payment | Mortgage Rate | Monthly Payment |
| $440,000 | $88,000 | 6.59% | $2,246 |
| $464,000 | $92,600 | 6.09% | $2,247 |
| $489,000 | $97,800 | 5.59% | $2,243 |
Tip
As a general rule, for every half percentage point mortgage rates fall, homebuyers can afford a roughly 5% more expensive property without paying more per month.
Falling Mortgage Rates Could Drive Prices Higher
While lower mortgage rates do mean homebuyers could get more home for their money, it’s not nearly that simple.
Reduced rates could bring more potential homebuyers into the market. That means more competition and likely rising home prices, according to Redfin agent Tamara Mattox-Kabat.
“The problem with that strategy is that if rates do fall again, more buyers will come off the sidelines, prices will rise, and sellers will regain their leverage,” Mattox-Kabat said. “That means even with lower mortgage rates, buyers could end up with a higher monthly payment.”
Will Rates Go Lower?
Mortgage rates have fallen steadily from a peak of more than 7% in January, but they’re still higher than they were a year ago.
The Federal Reserve’s decision to cut interest rates by a quarter point last week did not lower mortgage rates as some homebuyers hoped (this is a common misconception, as mortgage rates more closely follow 10-year Treasury yields). Still, some experts project that mortgage rates will fall by the end of 2026.
The Bottom Line
Lower mortgage rates would save homebuyers money on their monthly payments, or give them room to spring for a more expensive home while keeping their payment roughly the same. However, lower rates could increase competition among buyers, thus driving up home prices. Mortgage rates today are lower than they were in January but remain higher year-over-year.
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