Interest Rates Near Historic Low

When interest rates are low, it’s an exciting time for Real Estate. Buyers have more purchase power, more options, and are setting themselves up for success over the lifetime of their loan.

When buyers enter the real estate market and consider their budget, they think of what their monthly mortgage payment will be. Most consider if they can afford that payment within their monthly income. The thought about how much of that payment is going to interest is most often an afterthought.

Although paying interest is not something anyone wants to do, mortgages do make homeownership accessible to the average homebuyer. Below are some examples of what a mortgage payment would be including both principal and interest payments. We will use a loan amount of $100,000:

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The good news is that mortgage rates are near historical lows. Right now is a great time to enter into the real estate market as either a buyer for a primary residence, and investor, or as a second home buyer. Comparatively, interest rates have been much higher in the past, and, in some cases, making it nearly impossible to buy a home. Mortgage interest rates hit an all-time high in October of 1981. In an effort to curb inflation, the Federal Reserves increased interest rates and the result was a staggering 18.63% on a 30 year fixed mortgage.

The chart below illustrates the difference in 30-year fixed mortgage rates during three different time periods, in 1981 at its peak, in 2007 at the height of the housing bubble and current rates near historic lows.

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The chart above clearly shows the importance of interest rate in buying decisions. The payment difference between the 2019 payment and the 1981 payment is nearly 4 times greater. A homeowner can save nearly $400,000 over the life of a loan by having this lower rate compared to what we saw in 1981. Even the difference between today’s rates and the average rate in 2007 cuts the amount of interest paid in half.

Here are some more advantages to securing a low interest rate:

•   Lower monthly payment

•   Pay down the principal balance much faster

•   Gain equity in the home quickly

•   Can turn a profit on the sale of a home sooner

If you are ready to take advantage of these low interest rates, reach out. I’d be happy to connect you with one of my trusted lenders and assist you in the process of finding your perfect home.