The High Impact of Low Interest Rates on Your Purchasing Power

The High Impact of Low Interest Rates on Your Purchasing Power | Simplifying The Market

According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 3.96%, which is still near record lows in comparison to recent history!

The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power.

Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain monthly housing budget.

The chart below shows what impact rising interest rates would have if you planned to purchase a home within the national median price range, and planned to keep your principal and interest payments between $1,850-$1,900 a month.

The High Impact of Low Interest Rates on Your Purchasing Power | Simplifying The Market

With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000). Experts predict that mortgage rates will be closer to 5% by this time next year.

Act now to get the most house for your hard-earned money.

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Be Thankful You Don’t Have to Pay Mom and Dad’s Interest Rate

Be Thankful You Don’t Have to Pay Mom and Dad’s Interest Rate | Simplifying The Market

Interest rates have hovered around 4% for the majority of 2017, which has given many buyers relief from rising home prices and has helped with affordability. Experts predict that rates will increase by the end of 2017 and will be about three-quarters of a percentage point higher, at 4.5%, by the end of 2018.

Last week’s Freddie Mac Primary Mortgage Market Survey revealed that interest rates for a 30-year fixed rate mortgage have fallen to their lowest mark this year, at 3.88%. This is great news for homebuyers looking to purchase and homeowners looking to refinance.

The rate you secure greatly impacts your monthly mortgage payment and the amount you will ultimately pay for your home.

Let’s take a look at a historical view of interest rates over the last 45 years.

Be Thankful You Don’t Have to Pay Mom and Dad’s Interest Rate | Simplifying The Market

Bottom Line

Be thankful that you can still get a better interest rate than your older brother or sister did ten years ago, a lower rate than your parents did twenty years ago, and a better rate than your grandparents did forty years ago.

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The Impact Your Interest Rate Makes [INFOGRAPHIC]

The Impact Your Interest Rate Makes [INFOGRAPHIC] | Simplifying The Market

The Impact Your Interest Rate Makes [INFOGRAPHIC] | Simplifying The Market

Some Highlights:

  • Interest rates have come a long way in the last 30 years.
  • The interest rate you secure directly impacts your monthly payment and the amount of house that you can afford if you plan to stay within a certain budget.
  • Interest rates are at their lowest in years… RIGHT NOW!
  • If buying your first home, or moving up to the home of your dreams is in your future, now may be the time to act!

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Mortgage Interest Rates Reverse Course in 2017

Mortgage Interest Rates Reverse Course in 2017 | Simplifying The Market

To start the year, housing experts all agreed on one thing: 2017 was going to be the year we would see mortgage interest rates begin to rise. After years of historically low rates, and an improving economy, the question wasn’t if they would increase but instead how much they would increase. Some thought we could see rates hit 5-5.5% by the end of the year.

However, the exact opposite has happened. Instead of higher rates as we head into the middle of 2017, we now have the lowest rates of the year (as reported by Freddie Mac). Here is a graph of mortgage rate movement since the beginning of the year:

Mortgage Interest Rates Reverse Course in 2017 | Simplifying The Market

Projections still call for an increase…

Four major entities (Freddie Mac, Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors) are still projecting that rates will increase by the fourth quarter of the year.

Mortgage Interest Rates Reverse Course in 2017 | Simplifying The Market

Bottom Line

No one knows for sure where interest rates will be in six months. However, if you are thinking about buying your first house or trading up to the home of your dreams, you can still get a mortgage at historically low rates RIGHT NOW.

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Is 2017 the Year to Move Up to Your Dream Home? If So, Do It Early!

Is 2017 the Year to Move Up to Your Dream Home? If So, Do It Early! | Simplifying The Market

If you are considering moving up to your dream home, it may be better to do it earlier in the year than later. The two components of your monthly mortgage payment (home prices and interest rates) are both projected to increase as the year moves forward, and interest rates may increase rather dramatically. Here are some predictions on where rates will be by the end of the year:

Freddie Mac

While full employment and rising inflation are signs of a strong economy, they also have the potential to push mortgage rates and house prices up. The higher rates and higher prices create significant affordability concerns, which may continue to characterize the housing market for the rest of 2017.”

Lynn Fisher, Vice President of Research & Economics for the Mortgage Bankers Association

By the time we get to the fourth quarter of this year, we will still be under 5 percent – we are thinking 4.7 percent…Something north of 5 percent by the time we get to 2018, and by the time we get to 2019, we show fourth-quarter rates hitting 5.5 percent.”

Mark Fleming, First American’s Chief Economist

Despite some regional disparities, title agents and real estate professionals do not expect increasing mortgage rates to have a significant impact on the housing market this spring. Continued good economic news, increasing Millennial demand and confidence that buyers will remain in the market even if rates exceed 5 percent bode well for 2017 real estate.

Len Kiefer, Deputy Chief Economist for Freddie Mac

We will probably see rates higher at the end of year, around 4.5%.”

Bottom Line

If you are feeling good about your family’s economic future and are considering making a move to your dream home, doing it sooner rather than later makes the most sense.

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