This one could get complicated to map out, but I'm going to try to make it as easy as possible to demonstrate the difference 1% in rate can do to your budget.

It's also a reason why you should shop interest rates/closing costs from lender to lender.

A big drop in interest rate can mean the difference between a $515,000 house and a $570,000 house for the same monthly payment

Why builders take advantage of this

It's another reason why builders would rather give you a bunch of concessions to buy down the rate, rather than knock down the price of their home.

It makes a more expensive house 'affordable' within your budget.

They'd rather sell you a high priced home with concessions, than try to knock down the price to make it the same payment at market rates.

The chart

I'm going to put a budget amount, and this budget is just principal and interest. Pretend property taxes and homeowners insurance is paid separate, and you budget for it separately.

The last time I looked at mortgage new daily's website we were at 6.5%, so we'll be looking at what a drop from 6.5% to 5.5% will do for the total loan amount.

Just principal and interest and 30 year term to help demonstrate this.

Budget	6.5% loan	5.5% loan
$10,000	$1,582,108	$1,761,218
$9,750	$1,542,555	$1,717,187
$9,500	$1,503,003	$1,673,157
$9,250	$1,463,450	$1,629,126
$9,000	$1,423,897	$1,585,096
$8,750	$1,384,345	$1,541,065
$8,500	$1,344,792	$1,497,035
$8,250	$1,305,239	$1,453,005
$8,000	$1,265,687	$1,408,974
$7,750	$1,226,134	$1,364,944
$7,500	$1,118,581	$1,320,913
$7,250	$1,147,028	$1,276,883
$7,000	$1,107,476	$1,232,852
$6,750	$1,067,923	$1,188,822
$6,500	$1,028,370	$1,144,791
$6,250	$988,818	$1,100,761
$6,000	$949,265	$1,056,731
$5,750	$909,712	$1,012,700
$5,500	$870,160	$968,670
$5,250	$830,607	$924,639
$5,000	$791,054	$880,609
$4,750	$751,501	$836,578
$4,500	$711,949	$792,548
$4,250	$672,396	$748,517
$4,000	$632,843	$704,487
$3,750	$593,291	$660,457
$3,500	$553,738	$616,426
$3,250	$514,185	$572,396
$3,000	$474,632	$528,365
$2,750	$435,080	$484,335
$2,500	$395,527	$440,304
$2,250	$355,974	$396,274
$2,000	$316,422	$352,244
$1,750	$276,869	$308,213
$1,500	$237,316	$264,183
$1,250	$197,764	$220,152
$1,000	$158,211	$176,122

As you can see here, it's all the same percentage increase, because it scales linearly.

the increase in loan amount would be 11.32%

You get a 11.32% bigger loan amount for the exact same payment.

Remember, I'm not considering property taxes or homeowners insurance.

Part 2: Just budget and increase side by side

Budget (principal/interest)	Increase
$10,000	$179,109
$9,750	$174,632
$9,500	$170,154
$9,250	$165,676
$9,000	$161,198
$8,750	$156,721
$8,500	$152,243
$8,250	$147,765
$8,000	$143,288
$7,750	$138,810
$7,500	$134,332
$7,250	$129,854
$7,000	$125,377
$6,750	$120,899
$6,500	$116,421
$6,250	$111,943
$6,000	$107,466
$5,750	$102,988
$5,500	$98,510
$5,250	$94,032
$5,000	$89,555
$4,750	$85,077
$4,500	$80,599
$4,250	$76,122
$4,000	$71,644
$3,750	$67,166
$3,500	$62,688
$3,250	$58,211
$3,000	$53,733
$2,750	$49,255
$2,500	$44,777
$2,250	$40,300
$2,000	$35,822
$1,750	$31,344
$1,500	$26,866
$1,250	$22,389
$1,000	$17,911