The outlook is positive for those looking at current mortgage interest rates. In the past few weeks, the interest rates have dropped back down into the high 3’s. As of October 22, a buyer could obtain an interest rate of 3.875%. As we mentioned in the past, these interest rates are nearly at lifetime lows, and at some point, we will not see rates like these. Since 1971, interest rates have varied from a low of 3% to a high of 16%. Many years interest rates have fallen in the 7-10% range.
If a buyer has a standard down payment for a home, the total monthly expense may actually be less to own than to rent. Additionally, lower interest rates oftentimes allow buyers to qualify for a larger loan, which could allow a buyer to purchase a larger home, or a home with higher value.
As we have explained in the past, a 1% change in interest rates impacts buying power by 10%. Essentially, a 1% drop in interest rates allows the buyer the ability to purchase a home with a 10% higher purchase price, for approximately the same monthly expense. In contrast, a 1% rise in interest rates would decrease purchase power by 10%. The power of the interest rate in a home purchase is significant, as they directly correlate to more affordable homes!
See the below example for a home purchase with current interest rates:
Down Payment: 20% = $65,980
Loan Amount: 80% = $263,920
Principal & Interest = $1,241.05 Per Month
Estimated Taxes, Insurance, and HOA = $234.31 Per Month
Total Estimated Monthly Payment: $1,475.36
As you can see, what initially could seem daunting when purchasing a home in actuality feels more manageable with the lower interest rates. With rents on new homes between $1,500 and $2,000 per month, it can make sense to purchase a home now. Please let us know if we may help you in any way, or answer any questions in regards to interest rates and home purchases.
Using this home as an example, if the interest rates are 1/2% higher as they were recently, a person can afford $16,303 more with the current interest rate, pay off the mortgage sooner, or include some significant upgrades. All a person has to do to acquire these savings is buy when the time is right.