This morning the federal reserve announced a half percentage point cut in federal funds rates...no that does not mean you can go lock-in at 0.5% lower on your current interest rate today (hang with me, I'll explain why in just a minute). Rats, you were getting excited weren't you? But... It does mean that if you want to buy a house this year you are one of the luckiest folks in history when it comes to your interest rate. A home that would have been completely unaffordable a few years ago is now within your reach, and you will pay significantly less for it over the term of your loan. The chart below shows mortgage interest rates since the 70's and we are currently sitting at an all-time low since 2016. ![]() So how much does interest rate affect the total cost of your home over the course of your loan term? Let's take a look... The Fed rate adjustment (what everyone is talking about today) is for short-term interest rates, which is why that half percent drop won't immediately affect your refinance rate. If you are currently on hold with your lender's office, no need to panic, just shoot them an email instead and keep reading. Mortgage rates are tied to long term bond rates, and if you want to guess at where our mortgage interest rates are headed keep an eye on the US 10 Year Treasury Note. Spoiler alert: it's dipping and many have their fingers crossed it will take mortgage rates with it again. Every little bit helps the total out of pocket at the end of your loan term, and while it's not really worth fussing over a few tenths of a percentage point, any movement will add up over time. Here's a graph approximating the total interest you might pay over the life of a hypothetical $500,000 30-year fixed loan based on your interest rate. So yeah, it makes a huge difference. You can save hundreds of thousands over the life of your loan with our current interest rates compared to historic ones. And if you really like math, go ahead and factor in average inflation rate to that equation...with rates in the 3% range a home loan right now is about as close to "free money" as we'll likely ever get. Moral of the story: If you are planning to use a home loan for your next purchase, this is an excellent time to talk with your lender, get your pre-approval letter and start shopping! ***
Thinking about buying a home or upgrading to something that will take you into your next chapter of life? Here's my little PSA speech I give all my clients... The longer you stay in your home the better off you will be in terms of loan interest and savings. Remember that loan amortization means you will be paying the bulk of your interest up front, and every month you stay in your home your monthly payment will go less towards interest and more towards your principal. There is a sweet spot somewhere around 3-10 years where you go from break-even to profit if you sell. What effects that and how can you speed it up? If the market is growing fast, you have a low interest rate, and an awesome agent who finds you a great deal you could be sitting on easy equity within just months of moving in. I'm always happy to run the numbers for you. I want you to love your home and for it to love you back.
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September 2023
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