Historic Low Interest Rates Benefit Buyers and Sellers

The government shutdown due to Corona-virus didn’t kill the housing market. When the virus first began making the news in February and March there were multiple dire predictions about the impact it would have on the housing market. Speculation was rampant that both sales and prices would collapse in the face of a brutal recession. But now we’re in the last quarter of 2020, and the housing market is showing strong signs of recovery. With the help of historic low interest rates the housing market successfully weathered COVID and the shutdown that followed, and there is still positive price action moving forward.

Currently, the historic low interest rates have some lenders offering 30-year mortgages below 3 percent. If purchasing a new home makes sense for you, such low rates will have you reaching for your checkbook.

1. Renting Vs. Buying During Historic Low Interest Rates

It’s possible low interest rates may make owning a house more affordable than renting one, depending on individual circumstances. And with a mortgage likely being the single highest cost that home-buyer incurs, low rates definitely drive purchases.

If you feel confident enough to proceed with one of the biggest purchases of your life, the current low-rates justify you doing so without hesitation. Loan rates are at, or near, multi year lows. And relatively small rate changes have massive impacts on borrowing costs. Dropping the rate on a $200,000 purchase loan with a 30-year fixed rate from 5% to 4% saves nearly $43,000 in interest over the life of the loan and reduces the monthly payment by about $120, north of 10%.

So what does this mean for home buyers and sellers? Below are 5 key advantages of buying or selling a home in a low interest rate market.

2. Historic Low Interest Rates Make It Easier To Sell Your Current Home Than Ever

Needing to sell your house first is a common complication when looking to buy a new home.. And if you’re looking to upgrade or move to a new location, it may be easier to sell your current home than at any time in recent memory.

Sellers either didn’t list their houses at all, or removed their properties from the market as the pandemic unfolded. This has made inventory tight in many markets. This not only makes it possible for you to potentially get a higher price on the sale of your current home, but also that you’ll sell it quickly. Lack of inventory means homeowners are unlikely to face challenges selling their current homes in order to buy new ones.

3. Mortgage Interest Rates Are Near All-time Lows

Buying now gives you an opportunity to lock-in some of the lowest mortgage rates in history. According to Freddie Mac, the rate is 3.13% on a 30-year fixed-rate mortgage, and 2.59% on a 15-year mortgage. (These numbers fluctuate daily.)

For comparison, the rate on a 30-year fixed rate mortgage was 3.72% on January 2. That kind of decline results in a significant drop in your monthly payment.

An example of this looks like a 30-year fixed rate mortgage for $300,000 at 3.72% giving you a monthly payment of $1,384. But the same loan with an interest rate of 3.12% falls $1,284, saving you a full $100 each month.

Just remember to lock in the low rates with a fixed rate mortgage. You’ll find mortgage brokers attempting to sell you a variable rate – but stick with fixed to lock in the lowest rates.

4. These Rates Won’t Last Forever

Today’s low interest rates are combined with a subtle cooling in home price appreciation. This gives buyers a golden opportunity to make a very smart investment.

You can’t really beat a good rate, so now is the best time to get in to purchase property. Waiting and worrying about a bubble burst and things that may or may not happen in the future, might mean that the gorgeous home that’s an affordable price point now, could eventually be out of your budget. These rates won’t last forever and take advantage of them while you can.

5. More Purchasing Power

Lower interest rates give home-buyers more purchasing power. On a 30-year mortgage, a 5% interest rate with a $1,000 monthly payment allows a buyer to afford a home worth $186,282. When that rate drops to 4%, the very same monthly payment will be able to afford a property worth $209,461 – an increase of around $23,000.

With low interest rates, home-buyers will be able to purchase larger homes for the same amount that a small house or condo would have cost more than a year ago. This makes it ideal for buyers who face difficulty in looking for a home within their price range, as they now have more options available to them.

Home sellers benefit from declining interest rates as well, with more potential buyers able to afford their home. This is an optimal time to put a home on the market, with mortgage rates not expected to increase soon.

6. More Competitive Mortgage Lenders

Mortgage interest rates are closely related to Treasury yields, and right now the treasury rates are historically low.

Low interest rates make mortgage lenders quite competitive, which means buyers can look forward to getting mortgage loans with very favorable terms. You might be able to negotiate to have certain fees removed, such as processing fees, application fees, and origination points.

Final Thoughts

If you find the right house and it fits within your budget, it’s best to buy now. With major financial decisions, we tend to engage in a lot of speculation about what the future holds. While this is a natural reaction to uncertainty, you’ll never know for sure how things will play out. So do your due diligence and go with your gut.