Tired of hearing about interest rates? Me too! But, if you’re thinking of buying a house, now or in the future, something as boring as interest rates can make a big difference in your buying power. Yeah, it’s true! And you should know what they mean and how they can impact your decisions.
The interest rate you get on your mortgage can affect how much house you can afford and how much you’ll end up paying in the long run. So, let’s dive into the exciting world of interest rates and see how they can make or break your dreams of owning a home!
Interest rates are one of several factors that affects the cost of borrowing money when purchasing a home. They have a significant impact on the monthly mortgage payments and the overall affordability of a home.
When you take out a mortgage to purchase a home, the lender charges you interest on the amount you borrow. Interest rates are the percentage of the loan that you pay to the lender as compensation for lending you the money. The interest rate on a mortgage can vary depending on the lender, the loan type, the borrower’s credit score, and the prevailing market conditions.
Not too long ago, interest rates were right around 3.5%. A lower interest rate means that borrowing money is “cheaper”, which means you can afford to buy a more expensive house. For example, let’s say you want to keep your monthly mortgage payment at about $2000 per month. At the 3.5% interest rates for a 30-year fixed rate mortgage of a year ago, you could afford a house that cost $450,000. Your monthly payment would be $2021.
However, if the interest rate is at 5.75% for a 30-year fixed rate mortgage, closer to the rates of today, the price of the house you can afford today drops to $350,000 with a monthly payment of $2045.
Historically, the interest rates of today are pretty average. The highest interest rates were in 1981 when they reached nearly 17.0%.
The bottom line is that only you can decide when the time is right time to buy a house. There are other factors that influence these decisions such as job changes, downsizing, relocating or maybe you are just strapped for space. Whatever the reason, be sure to be educated on how they work and be sure to shop around for lenders. All lenders are not equal.
If you need help with finding a good lender, talking through whether you are ready to buy or should wait, or just want to bounce some ideas around, be sure to get in touch. I am always happy to help!