I was reading a fantastic blog post by Richard Weiser Buying a house now could be the best hedge against inflation …EVER! and I was thinking to myself about how it was not only a great way to beat inflation but how the historically low interest rates will help you save money right now?
Interest rates have been so low for so long we have become sensitized to them. We have forgotten what the historical averages are for interest rates. While I am too young to ever have paid 18%, I did pay 9% on my first home in 1993. For those of you who haven't been paying attention the average rate on a new mortgage is hovering around the 4.5% range. By historical standards that is the lowest rate ever since rates have been tracked and it is 1% lower than a year ago.
What most people don't realize is that a 1% drop in interest rate equal a 10% difference in your purchasing power. So if you are qualified for a purchase price of 200,000 at 4.5% you would only qualify for $180,000 at 5.5%. While interest rate are low now, how long can they really stay there?
So by taking advantage of the low rates you are not only beating inflation but you are saving an immediate 10% in the form of a lower monthly payment then if you bought 1 year ago today.