Here’s why buyers should consider the affordability low rates provide.
How does a 3% interest rate affect your monthly mortgage payment? Well, in 1980, rates were roughly 12%. If you were to purchase a $300,000 home in 1980 with a conventional 30-year fixed-rate mortgage—the standard for most homebuyers—your monthly mortgage payment would be roughly $3,250 a month (without taxes and insurance). Flash forward to 2020; if you buy a $300,000 house with a conventional 30-year fixed-rate mortgage today, your monthly mortgage payment would be roughly $1,270 a month—that’s effectively $2,000 less!
Furthermore, with today’s rental market, renting basically equates to paying an 8% interest rate, which is like being a homeowner who set their clocks back to the start of the millennium.
The point, of course, is that a low rate means you can qualify for more. If the rate is lower, your loan value increases. Even though this is a very competitive market, you can afford more ‘home’ right now than you ever could before. If you don’t buy now, it’s possible that home values will continue to increase and interest rates will follow suit.
Most loan officers we’ve worked with have told us that these current rates will remain steady through the first quarter of 2021. Prices, on the other hand, will almost certainly go up. So, if 2021 rolls around and rates are the same but prices are up, then you’ve lost the buying power you had today. Buying now versus buying in six months is a clear call.
Real estate always appreciates, so a $300,000 home today could be a $350,000 home by early 2021, and interest rates could easily be back up to 4%. If you have put your home buying plans on hold to avoid the competitive market and high home prices, your strategy won’t pay off like you think. When you couple these super low rates with the fact that real estate is always appreciating, it becomes clear that it’s more affordable to buy now than it is to wait.
If you have further questions regarding the impact rates have on affordability in the market or real estate trends in general, please feel free to reach out to us via phone or email; we’re happy to show you how this concept applies to your situation. We can get you in touch with some of our go-to lenders who will take great care of your needs. They’ll look at your financial situation, crunch the numbers, and give you their honest input on whether now is the right time for you to buy. We look forward to hearing from you soon!
