07/24/2020
Mortgage rates have reached historic lows – but what does that actually mean for you as a buyer? Let me explain!
First, swipe to see average historic rates by decade compared to where we are currently. Let’s be glad we’re not buying houses in the 80’s, am I right? But let’s do some quick math to see how the mortgage rate actually affects your purchasing power as a buyer:
For this exercise, let’s say you’re buying a house for $350,000 in 2020, you’re putting down 5% and you lock in the average rate of 3.21%. With these calculations using my mortgage calculator, your monthly mortgage (not including taxes or homeowner’s insurance) would come out to be $1439.78/month.
Now let’s say you decide to wait to buy and the rate jumps up 1% by the time you are ready. That $350,000 house with 5% down and an interest rate of 4.21% would come out to be: $1627.93 / month. A rate increase of just 1% would increase your mortgage by $188 / month.
And let’s not even talk about what that increase would be if we went back to the average rates of the 1980s! The moral of the story is, when you’re trying to decide if now is the right time to buy and take advantage of the current rates – it’s easier to make a decision when you break it down into realistic numbers, like what your monthly mortgage payment would be. To sum it all up, the more that mortgage rates increase, the less purchasing power you ultimately have. So your budget of $350,000 could potentially decrease depending on where mortgage rates are headed (or your payment goes up even if you can afford the difference)! While rates aren’t being projected to go up anytime soon, it’s good to have a handle on what’s happening in the market so that you can make smart real estate decisions.
***All of these numbers are estimates and not direct reflections of what YOUR mortgage payment would be! To learn more about your own personal numbers, I’d love to connect you with one of my go to mortgage pros in the area!