By now, you've probably heard that mortgage rates have hit historic lows and that buyers are still buying despite the global pandemic because of this. But maybe you have never thought much about mortgage rates or are curious what impact that actually has on your purchasing power?
Today we are breaking down the difference between buying a home now with rates where they are versus if they increased a percentage. Our goal is to help buyers make smart real estate decisions and understanding that the market they're potentially buying in plays a big role in this.
So what does mortgage rates being at a "historic low" even mean?
Let's break it down by decades so that you can see for yourself!
In the 1970s, the average rate was 8.86%
In the 1980s, the average rate was 12.7%
In the 1990s, the average rate was 8.12%
In the 2000s, the average rate was 6.29%
In the 2010s, the average rate was 4.09%
And as of June 2020, the average rate is 3.21% Crazy, right?
So yes, mortgage rates are truly at a historic low as we speak. But how does this affect your actual purchasing power?
First and foremost, can we just give thanks for not reliving the average rates of the 1980s? 12.7% would greatly reduce the amount you could afford versus where we are at today at 3.21%
Time to do some math:
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 a 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.
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 avereage rates of the 1980s!
(Okay. Okay. We know you are dying to know what the mortgage would be so we went ahead and did the math for you: In the 1980s, the same exact scenario would take your mortgage payment up to $3600/month. *GULP*)
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 a realistic number: 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.
So, before deciding if you want to wait to buy or take advantage of the low rates we're seeing now, do some math! Your next step would be to get in touch with your favorite Coldwell Banker Gosslee agent! They can run some numbers, walk you through what is happening with the market overall and help you determine if now makes sense for you to buy!
Our agents are also scheduleing virtual consultations! They can even take you through virtual tours of the home while you stay in the comfort of yours!
Just give us a call to get started today!
Bossier City Office 318-747-5411
Shreveport Office 318-861-2461