Mortgage interest rates rose in a big way on Friday, just as the economy was reeling from the removal of Russian oil products from our gas pumps, skyrocketing inflation, and the Fed’s interest-rate hike.

After this quadruple whammy, these are some of the new interest rates that homebuyers must contend with, according to Business Insider:

  • 30-year fixed: 4.59%
  • 20-year fixed: 4.37%
  • 15-year fixed: 3.76%
  • 7/1 ARM: 4.04%
  • 5/1 ARM: 4.04%

High interest rates can change the landscape of the housing market for obvious reasons. Some homeowners have mortgages that are directly tied to the Fed rate, and some would-be homeowners are finding themselves frozen out of funding.

That’s because debt-to-income ratios are playing a bigger part in lenders’ decisions, and people who once qualified for one loan are now ineligible for that same loan today.

One way to reduce your debt-to-income ratio is to cut the amount of debt you have. Someone who would like to reduce their overall debt is a perfect candidate for the 50-30-20 rule.

This means that 50% of your income should go to your fixed expenses. The fixed expenses category includes things such as rent or mortgage, insurance, tuition, groceries, utilities and car payments. If you can pay those expenses within 50% of your monthly income, then you're doing great.

Keep in mind that 30% is discretionary. Discretionary money is your fun money. It’s what you spend on vacations, movies, eating out, hair and makeup, getting your nails done, spa, gym memberships, etc. All fun activities would count against your discretionary budget.

And 20% is your savings. Savings includes your IRA and 401(k), but also any money you spend paying off credit card debt, surplus cash from the discretionary fund, cash you keep on hand, and your emergency fund.

Hopefully, the 50-30-20 plan will enable you to qualify for the next mortgage that makes sense for you. Even if it doesn’t, all of your bills will be paid and your savings will grow. If you already have an ARM, it might be worth calling your mortgage broker to ask if an adjustment is available to you.

Following the steps above will help you be proactive rather than reactive in your effort to reduce your debt-to-income ratio. The biggest threat to any spending plan is having items that you continually ignore or forget about.

Be practical enough to change your spending plan if you wind up “living a lie.” Make sure your spending plan reflects your lifestyle, cut yourself some slack and take a long-term view of your finances.

And know that falling off your horse and getting back on it is a time-honored tradition shared by most successful people.

Judy Heft is the CEO/founder of Judith Heft & Associates, a financial and lifestyle concierge celebrating 26 years in business helping people stay financially organized. She is a certified money coach and the author of “How to Be Smart, Successful and Organized with Your Money.” For more information, visit www.judithheft.com.

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