What Do Low Interest Rates Mean To You?

June 30, 2011

If you've been searching for a new home you've probably heard someone say, "There's never been a better time to buy a new home, interest rates are at an all time low." But what does that really mean to you? Here's a little history on interest rates. Do you know what a high mortgage rate would look like? December of 1980 the 30-year fixed mortgage rate was 14.79%. By January of 1990 it dropped to 9.67%. Over a 10-year period, rates inched down by about 5%. But by May 2000 the rates were only down to 8.52%, barely a 1% change in 10 years. So, when you hear reports that mortgage rates are at an historic low, this gives you more context. Several years ago people were happy to purchase at a 6.5% interest rate, but now, with mortgages available from the high 4% to low 5% range there truly has never been a better time to purchase a home. Especially as rates slowly creep up again. So what can you get for your money with lower interest rates? Low rates mean lower payments: If you can afford a mortgage of $150,000 at a rate of 4.9% your monthly payments will be around $796 per month (not including taxes and insurance). A rate of 6.5% would cost about $948 per month. By purchasing a home while the rates are low, you free up over $150 per month. Low interest rates mean you can get more house for your money: If you can afford a payment of about $790 per month (not including taxes and insurance) that means at a rate of 6.5% your mortgage would be approximately $125,000. Yet at a rate of 4.9% you can afford a home loan of almost $150,000 this gives you nearly $25,000 more house for the same payment of approximately $790 per month. This difference in price could be the space you need and the options you want. Rolling $25,000 more into a mortgage could get you a lot more house for your money in a new home. It's important to understand rates so that you can make an informed decision about purchasing your new home. Many people keep waiting for the lowest rates. But how will you know when the rates hit bottom? Usually when standing at a higher point looking down. By assessing your situation and looking for the right loan to fit your current lifestyle, you can look at the historic rates and see how much more home you will get for your money now verses just a few years ago. *We have to say this lame disclaimer...Rates and payments are approximate for the purposes of this article and do not include taxes and insurance. Image source: ©PhotoXpress.com
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