Interest rates are always a big discussion when anyone talks about the current state of the housing market. And for good reason too because interest rates have a significant impact on both home prices and mortgage payments. If you are curious to know more about how interest rates factor into all things housing, here are the basics of what you need to know.
Effect on Home Prices
Interest rates and home prices typically have an inverse relationship. When interest rates are low, home prices tend to rise, and when interest rates are high, home prices often stabilize or decrease. This is because lower interest rates make borrowing money more affordable, which encourages more people to enter the housing market and bid up prices.
Lower interest rates can stimulate buyer demand, as more individuals and families can qualify for larger mortgages and afford more expensive homes. As a result, competition among buyers can drive up home prices. And vice versa for when interest rates are higher.
Low interest rates can make housing more affordable for potential buyers. Even if home prices rise, the lower interest rates can keep monthly mortgage payments within reach for many buyers, which can sustain demand and keep upward pressure on prices.
Effect on Mortgage Payments
Securing a loan is one thing, but many people are most interested in how home prices and interest rates will translate into their monthly mortgage payments. The truth of the matter is that interest rates directly impact your monthly mortgage payment. When interest rates are low, your monthly payment for a given loan amount will be lower than when interest rates are high. Conversely, higher interest rates result in higher monthly mortgage payments.
Lower interest rates also allow you to qualify for a larger loan amount for the same monthly payment. This can affect the price range of homes you can afford or the amount you borrow for your mortgage.
Over the life of your mortgage, the total interest paid is significantly affected by the interest rate. A lower interest rate means you'll pay less in interest over the life of the loan, potentially saving you tens of thousands of dollars.
Many people are scared off from home buying when interest rates are high, like they are now, but the good news is that you can always refinance in the future when rates reduce, as they always ebb and flow. This can reduce monthly payments and save money over the life of the loan. So there are always options. And at the end of the day, what matters is that your needs are met. The best time to buy will always be when your circumstances allow you to. And at the end of the day, time in the market will always be better than timing the market as well.
If you need a home now, Goodwyn Homes would be happy to help find you a house you can afford, regardless of what interest rates may be. We pride ourselves on building quality homes that are affordable to buy and live in.
By Goodwyn Building 10-17-2023