You Should Be Interested in Interest Rates

An interest rate is the cost of borrowing money. It keeps the economy moving by encouraging people to borrow, to lend, and to spend. But prevailing interest rates are always changing, and different types of loans offer different interest rates.

The reason most home buyers pay interest is because you need to pay a price for gaining the ability to spend now, instead of having to wait years to save up enough money.  While all-cash home purchases are common, it’s more common to use borrowed money to purchase your home, with the expectation your profits will be greater than the interest payable. Can you imagine if you had to save up to pay for your house in full?

No doubt you’ve heard about how much interest rates have fluctuated over the past year. November 2018 saw the highest rates of the year at 4.95%. They have fallen gradually over the past 6 months, finally dropping under 4% in May. For the week ending June 27, 2019, rates are the lowest they’ve been in a long time. The 30-year fixed rate was 3.73%

To understand just how interest rates affect your buying power, consider the following scenario: 

You’re a well-qualified buyer with good credit and a 20% down payment. You qualify for the lowest interest rate.  If you purchased a $500k condo in November 2018, your monthly mortgage payment would be about $2,135.  If you buy that same condo this week, your monthly payment drops to $1,848.  That is nearly a $300 per month difference!  If you spent the same $2,135 with the current interest rates, you could buy a $578,000 condo!  

Applying that same scenario to a $1,000,000 home, your payment last November would have been $4,270. With today’s rates, you’d save nearly $600 at $3,696 per month!