Houses got cheaper, but how could that be? You can thank our record-low interest rates for that! As interest rates decrease, purchasing power for buyers increases, which means you may be able to afford more house now than ever before!
According to John Haney, owner of Colorado Mortgage Company, “VA interest rates, for example, are approximately 0.75% lower this year than July last year (3.5% vs 2.75% or lower today)! The difference in purchase price for the same payment of $1,700 (p&i)= $378,500 in 2019 vs $416,400 in 2020 (approx)”. This means that for the same payment, you can buy a house that costs almost $38,000 more this year all because of a lower interest rate!
This increased purchasing power can help buyers afford more home for their money. On the flip side, the higher your interest rate, the more money you will end up paying for your home and the higher your monthly payment will be.
|Interest Rate(VA 30 yr fixed)||Mortgage Payment on a $377,000 loan (Principle & Interest)||Mortgage Payment on a $414,000 loan (Principle & Interest)|
As you can see, a payment for a $377,000 home with last year’s rates will be nearly the same as the payment on a $414,000 home with today’s rates!
This is a huge advantage for buyers. To put it in perspective, it means that today you can get a lower rate than any of the past two generations of homebuyers in your family if you decide to purchase at this time.
In addition, the National Mortgage News notes how today’s buyers have increasing purchasing power due to these low mortgage rates:
Purchasing power rose 10% year-over-year…With interest rates hitting record lows, buyers were able to afford $32,000 “more house” as of July 23 than they could the year before with the same monthly payment.
Historical Interest Rates
Did you know that interest rates are significantly lower today than ever before? Looking at the chart below, you can see that the payment on a $300,000 home in the 1980s would cost over $3,200 whereas that same home would cost just over $1,200 today! That is nearly $2,000 a month less for the same loan amount, simply due to the record-low interest rates!
Prices have risen substantially in the Pikes Peak Region. The median sale price in July 2019 was $332,000 vs $377,000 in July 2020. This is a difference of $45,000 in just a year! However, looking at the chart below, you can see that the mortgage payment for the new median is only $60 more a month even though the house itself costs $45,000 more. This is because of the record-low interest rates!
As a buyer, it is more important than ever to take advantage of these super low rates because they fluctuate daily and will not stay around forever.
|Interest Rate(VA 30 yr fixed)||Median Price||Mortgage Payment on the median price(P&I only)|
In the Long Run
Also of importance is the amount that you will save over the life of your loan with the lower interest rate. The chart below shows that you will actually pay less interest overall on a $377,000 home today than a $332,000 home a year ago.
|Interest Rate(VA 30 yr fixed)||Median Price||Total Interest Paid(over 30 years)|
What does all of this mean?
It means that if you are thinking about buying a home, NOW is the time! Taking advantage of these low interest rates can help you afford more while also saving you money in the long run. You can see the difference a year can make in terms of both prices and rates, so don’t debate too long– or you could miss out on the home of your dreams!