Mortgage Interest Rates and Your Buying Power
The majority of people have probably heard about how low mortgage interest rates have been the past couple of years. Over the past decade interest rates on a 30-year fixed mortgage have dropped about 3%. It doesn’t sound like much until you look at just how much it affects your buying power and monthly payment. Take a look at the chart below.
As you can see, a buyer who purchased a home in 2006 for around $170,000 is actually paying almost $170 more a month than a buyer who purchased a home this year for $30,000 more!
Whether you are a first-time home buyer, or looking to move up to a larger, more expensive home, consider doing it now. According to CoreLogic, “prices are projected to appreciate by 5.2% over the next year” and interest rates are projected to increase moderately over the next 12 months. If you are moving to a higher-priced home, it will wind up costing you more in raw dollars (both in down payment and mortgage payment) if you wait. Even a small rate increase of 1.5 percent decreases your buying power by nearly 20 percent for the same monthly payment.