A very small portion of the population are able to offer cash on a home they are interested in buying. For the rest of us, we keep a close eye on mortgage rates so as to get the best deal. Most people set a budget amount of "X" amount of dollars per month, and depending upon the mortgage rate that person will seek out a certain loan amount. The better the interest rate the more you are able to borrow, which in turn usually means a bigger/better home for the buyer.
For example, a person who has a monthly payment in mind of about $1050 per month could get a $195,000 loan at a 5% mortgage rate. At a 7% interest rate that loan amount drops to a little more than $157,000, and at a 9% interest rate the loan amount free falls to just a tad more than $130,000. Note - all stated examples include only principle and interest. Taxes and insurance were not accounted for as there are variables for each.
As you can see the interest rate matters a great deal. Over the last 36 years interest rates have risen and fallen like a roller coaster at an amusement park. The height of interest rates peaked in 1981 and 1982 at around 16%. The highest month was in October of 1981 when interest rates climbed to nearly 18.5%. This is staggering if you consider that a person who gets a $100,000 loan at 18.5% would have a principle and interest payment of over $1500 per month, but the same loan at 5% is just over $500 per month for principle and interest.
Now comes the good news.
Our interest rates this year have been hovering around 5% and the last two months of May and June have actually been under 5%. As stated before, buyers will get more for their money. Let not fear grip you in this time of opportunity. Consult a reputable local lender and/or a local Realtor with any questions regarding you next home. Don't be the one who looks back on this time ten years from now and wishes they would have made a sound investment in real estate. The only thing we can be certain of in this volatile market is that eventually interest rates on home loans will rise!
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