The Power of the Interest Rate

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If you’ve been following real estate news recently, you’ll notice interest rates have been at historic lows. In fact, this year we have seen some of the lowest numbers on record with interest rates. As a homebuyer, this is a significant trend, and an area to consider if you’re looking at purchasing, especially your first home.

Some experts predict we will see a slight increase in rates as we head into 2021, and others predict rates will remain low. Key factors impacting the rates include: the coronavirus pandemic, the economy, and the election. This Bankrate article gives a variety of opinions on the topic: https://www.bankrate.com/mortgages/mortgage-rate-forecast/.

As we have explained in the past, the general rule is that 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 it directly correlates to more affordable homes! Of course, on the flip side, it’s important to take a look at home prices and demand, as the low interest rates and lack of inventory may be driving home prices up.

Regardless of the trend in the next several months, rates still hover low. If you have been wondering if now is the time to buy, this could be one factor in your decision. As always, purchasing a home relies on several factors, most importantly your goals and financial situation. We are always available to discuss your timeline and how we can help.