How Mortgage Rates Affect Buying a Home

How Mortgage Rates Affect Buying a Home

Mortgage rates are often a hot topic in the real estate industry because of their significant impact on a buyer's purchasing power; these rates impact loan availability and the monthly payment amount and can be a make a big difference in what price point a buyer can work within, and sometimes whether or not they can qualify for a loan. 


What Affects Mortgage Rates?

National mortgage rates are set by the federal government based on factors such as economic and general market conditions, inflation, and the bond market. However, this base amount can be adjusted by individual lenders and buyer variables as well. This includes credit score, debt-to-income ratio, loan-to-value ratio, mortgage type, property type, and location among others.


In the first quarter of 2024, interest rates varied from a low of 6.6% to a high of 6.94% for a 30 year mortgage. However, the second quarter began with an increase, pushing the rate above 7%. A 15 year mortgage ranged from 5.76% to 6.29% in the first quarter with a similar increase up to 6.44% in April 2024. Predictions from multiple agencies indicate that mortgage rates are expected to average out in the 6 percent range. 


How do Mortgage Rates Affect Purchase Power?

Purchase power is defined as the possible amount a buyer can afford to pay for any product or service. A homebuyer’s purchase power is affected by 10.75% for every 1% interest rate point, which can be significant.


Buyers and sellers have been getting creative to help offset the rising interest rates with seller credits, 2-1 buydowns, seller financing, and loan assumptions.  Some buyers are also opting for adjustable rate mortgages to get a lower interest rate, and plan to refinance to a conventional 15 or 30 year loan when rates lower.  

After setting record low rates in 2021 at just over 2%, it can be difficult to stomach paying 6-7%. However, these numbers are relatively low compared to the record highs set over the years with a max of 18%. We are advising some of our buyers that waiting for rates to drop may take a while and when they do drop, prices will likely rise, which could end up putting them at the same monthly payment, or potentially more.  This may not be possible for everyone as each buyer’s financial situation is different and we don’t want our clients pushing their comfort level. 


In another recent study, for every 1% increase over a homeowner’s current rate, the likelihood of them selling and then taking on the increased mortgage rate decreases by 18%. This is a major factor of our housing inventory shortage. 


Please do not hesitate to reach out to us regarding current mortgage rates and getting connected with the right lender, or if you have any other home buying questions. 


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The Durango Team has decades of real estate experience in the Durango, Colorado area. Let us help you buy or sell your Southwest Colorado home.

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