![Board of Governors of the Federal Reserve System (US), Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis [DGS10], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DGS10, January 16, 2023.](https://www.hawkinscre.com/wp-content/uploads/2023/01/borrowing_power_cre_20230119.png)
Board of Governors of the Federal Reserve System (US), Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis [Series DGS10], retrieved from FRED, Federal Reserve Bank of St. Louis; January 16, 2023.
The above chart displays the loan amount per $10,000 of monthly principal and interest (P&I) payment on a 25 year amortization schedule and assuming an interest rate 2.5% above the 10 year treasury. The actual spread varies over time and between institutions, of course.
“Money often costs too much.”
~Ralph Waldo Emerson
The idea here is to generally represent the effect on the buying power of an available income stream, either by way of a corporate budget or a debt service coverage ratio financing requirement, of changes in interest rates. Highlighted is the 28% drop from the maximum “buying power” to minimum of the last couple of years. For businesses purchasing real estate utilizing financing, this is a real effect, similar to the effect on homebuyers as interest rates change.