The Federal Reserve put out a report yesterday (October 8th) that led people to believe that interest rates are going to stay low for the immediate future. That’s bad for anyone looking to get a big return on money in a savings account, but it’s great news for anyone looking to buy a house.
As a result of this report, interest rates have fallen and this may be a great time to start looking for a mortgage.
When shopping for a house it’s important to make sure the price of the house is as low as possible, that you are buying in a city with low property taxes, and maybe most importantly, that you are buying at a time when interest rates are very favorable.
How Much Can You Save with Low Interest Rates?
Let’s look at an example. If you borrow $200,000 on a 30-year mortgage at today’s rates of around 4%, you are looking at a monthly payment of roughly $954.83. If interest rates go higher and that same 30-year mortgage is at 5%, the payments are going to rise to $1,073.64.
That’s a difference of $118.81 per month, which is obviously a substantial amount of money that would be nice to have in your pocket. But think about that much money every month for 30 years.
The exact same house with a $200,000 mortgage is going to cost an extra $42,771.60 over the life of the 30 year loan at a 5% interest rate as opposed to 4%.
$118 a month. $1,425 a year. $42,772 over 30 years. Think about all the things you could buy or money you could invest just by getting your home at a low interest rates.
Interest Rates are Truly at Historic Lows
With interest rates at such favorable rates you may want to find a mortgage that suits your needs right away. Nobody can tell the future so we don’t know if rates will stay the same or go up or down.
What we do know is that rates can’t really get much lower than they are now. A bank is in business to make money and at some point the rates just can’t get any lower without losing profitability.
Keep in mind that mortgage rates in the 1990’s were commonly around 7-9%, and rates in the 2000’s were rarely below 5%. If recent history is any indication, rates simply won’t go much lower than they are today.
While things like Federal Reserve reports give strong indications about where interest rates are going to go, there is no way to tell the future. It is possible that interest rates will stay this low for years, and even possible that they may go lower.
If you are prepared financially to buy your next house and have been waiting for one more reason to pull the trigger, today’s interest rates might just be that thing.