Historically low mortgage interest rates mean more than lower mortgage payments.
On the flip side of having a decreasing your mortgage payment is increasing affordability. What is affordability? Simply enough, it’s the ability to buy a better home for less money.
When interest rates go down, like they have been, it allows home buyers to ability to purchase more home for their money.
Sometimes, a few thousand dollars difference in purchase price can could put you closer the school, part or community that you really want to live in but previously couldn’t afford.
The maximum you qualify for is $1,000 payment (not including taxes, insurance or mortgage insurance), today’s interest rate (hypothetically) is 3.75% for a 30 year fixed
The maximum purchase would be $300,000
Let’s take a look at what happens to your maximum purchase price if interest rates increase:
- At 4.00% interest rate – maximum purchase price is $296,580
- At 4.25% interest rate – maximum purchase price is $293,200
- At 4.50% interest rate – maximum purchase price is $289,755
- At 4.75% interest rate – maximum purchase price is $286,425
A 1% change in interest rates equates to $13,575.00 in purchase price for your new home.
It’s important to remember that interest rates are extremely volatile and susceptible to change on a daily basis. Here is a two year snap shot of average interest rates by month from the Freddie Mac website.
What You Want vs What You Can Afford
There is a bittersweet feeling that comes with buying a home when your dream home is just out of your price range.
There are not many options to cure this problem unless you get a significant raise at your job, or come up with a larger down payment.
Taking advantage of low interest rates is a great opportunity to increase your affordable purchase price range without having to earn, or raise more money.
What Happens When Rates Go Up?
Interest rates will go up. It’s not a question of “if” interest rates will go up, it’s only a question of “when” they increase.
Whether interest rates go up or even if you want to drive historic interest rates even lower than they are now, you always have the ability to buy down the interest rate down by paying discount points.
If you have a closing cost credit, seller concessions, gift funds or a little extra money left over after your down payment, talk to your loan officer about what options are available for buying down your interest rate.
Of course, taking advantage of low rates and discount points is a perfect window of opportunity – Happy House Hunting!