You may have heard that interest rates are at HISTORIC LOWS right now but how does that really affect home affordability?
You can look at interest rates and home affordability in two ways:
- When interest rates are low, a Buyer can save money on their monthly mortgage payment
- When interest rates are low, a Buyer can afford “more house” for the same monthly payment
Let’s look at both cases with examples.
- The monthly payment on a loan of $150,000 at 4.5% interest over 30 years would be approximately $760. If interest rates drop to 3.2% that payment would be $649 dollars per month, a savings of $111 per month.
- Let’s say however that the Buyer in this situation is comfortable with a payment of $760 per month. As previously stated, if the current interest rate is 4.5%, the Buyer could borrow $150,000. If interest rates drop to 3.2% that payment of $760 per month would allow the Buyer to borrow 175,740, an increase of $25,740.
Either way you look at it, lower interest rates are Great for Buyers: When interest rates fall either the payment DECREASES or the amount borrowed INCREASES, in other words you are saving money OR getting more for your money.
Currently, interest rates are at historic lows for a 30-year mortgage. Multiple sources such as Bankrate.com are showing mortgage rates around 3.15% and Kiplinger.com is predicting rates will drop to around 3%. Of course, rates are dependent upon the amount borrowed, credit scores, etc. A local lender is a GREAT source of the rate you could qualify for but the message for current or potential home buyers is clear: it is a GREAT TIME to buy a home and get more for your money.
If you or someone you know if thinking of buying a home and are in need of a local Lender or Realtor, Give me a call today!