What Interest Rates Mean to You
In the past few years, interest rates on Mortgage loans have held at historic lows, making it a good time – financially speaking – to consider buying a new home. Of course, interest rates are only one of several factors that must be thought of when making a home purchase, but it is important to have an understanding of how interest rates can affect you as a new homebuyer.†
A lower interest rate can make a mortgage more affordable, not just in terms of Monthly Payments but also with the overall amount paid for the loan over time. The higher the interest rate, the more money the borrower will need to pay in Interest over the term of the loan. For example, if you locked in an interest rate of 3.9% on a 30-year Fixed-Rate Mortgage for a $500k home with 20% down, your monthly payment would be $1,887 (before taxes and insurance). At 4.9% interest, your monthly payment would increase by $236…but that adds up to an extra $84,960 over 30 years.
A change in the interest rate doesn’t necessarily translate to fluctuation in home prices, but interest rates can affect the housing market. If there’s a 0.25% interest rate increase, for example, you might need 3% more income to qualify for the same mortgage.
Considering that interest rates were around 8%-9% in 2000, today’s even lower rates are a new homebuyer’s dream, making now a great time to buy.