Posted by on

How do interest rates effect your purchase?

How do interest rates effect your purchase?

There are 5 financial components that every buyer should consider when purchasing a home: Purchase price, down payment, interest rates, taxes, insurance and home owners association (if applicable). Together these items produce a total payment. So how does the interest rate impact the total payment?

The interest rates can impact the payments considerably. Today, Interest Rates (IR) are close to 3.75% for a standard FHA loan. On a $150,000 purchase price with 5% down ($7,500), the principle and interest payment is $659.94. Six months ago, interest rates were 5.58% the same scenario, changing only the IR you payments are now paying $816.27, a $156.33 difference.

As the interest rates adjust, so can the type of home you purchase. As long as the prices remain the same, you may be able to find yourself in a larger, nicer home than you otherwise could have afforded. If the higher payment of $737.23 is within your budget, you could look at an increase now in your purchasing power. Instead of purchasing a $150,000 home, you can no consider an $185,000 home.

Home values will tend to incline as the inventory is low and if the interest rates remain low. For those homes priced under $130,000 there is a huge demand as inventory has dropped. There are only 42 active single family homes in the Cedar City and Enoch areas and 36 pending.

What loan program is right for you? There are many different types of loan programs out there. Depending on your credit score and debt to income (DTI) ratios, your lender can advise the best loan program that’s right for you. Popular programs include FHA, USDA (100% financing), Conventional, VA.

Is an adjustable rate good? Adjustable rates for the typical borrower is a bad idea. These programs typically start out with lower rates and then adjust to the rates at a future date. With rates extremely low right now, the best thing you can do as a borrower is lock that rate in and make sure it doesn’t change.

How low are our current rates? In 1980, interest rates reached an alarming 20%. Using the scenario above ($150,000 loan) with a 20% interest rate, your payments would reach $2,381. For the past 4-5 years, the rates have remained extremely low.

What does the term “point” mean? Often times, we hear things like, you can buy down your rate with discount points. As Bank of America has described, points are upfront fees paid at closing in exchange for a reduced interest rate. Read entire example by clicking here. A point is equal to 1% of your mortgage amount (or $1,000 for every $100,000). You’re essentially paying some interest up front in exchange for a lower interest rate over the life of your loan.

Should I hurry and buy a home to take advantage of the low interest rates? That’s a difficult question to answer. I would never suggest anyone get into a financial situation that he/she could not afford or if the timing is not right. Depending on a borrower’s situation in life (family, student, dependents, career, and goals) will greatly depend on the decision to buy or to rent. I personally support and agree with home “ownership”. I recommend talking to a Realtor who can help walk through your scenario with you and help you decide if purchasing a home now is the right decision.

When you look at your purchase, remember the strength you have with low interest rates. By working with a reputable lender and realtor you will receive the best advice for YOUR situation not theirs. In most cases, your interest rates should be locked for the term of the loan. Adjustable rates can be your worst enemy. Rates won’t stay this low forever so be cautious and smart as you proceed with your next purchase.

Leave a Reply

Your email address will not be published. Required fields are marked *

What Our Customers Are Saying

Very pleased. Joel was professional and honest. When asked, he gave his opinion, but did not try to over sell. He was very responsive, but also was respectful of our space. Our relationship seemed genuine and he gave us great personal attention. H...

Ferrin Affleck

Paige Marsh was the best real estate agent I have ever worked with and I have worked with at least 15 agents in the past 20 years on residential or commercial sales or leases. I work in Sales for a landscape company and I understand what it takes ...

Rob Archer

Paige was always calm, listened to our interests and concerns, and gave careful attention to details. She acted quickly when time was an issue and didn't become frustrated with us when we changed our mind after making an offer. Paige worked with u...

R & R Fawson

For several months,my husband and I were struggling in trying to find a home that would fit our needs. We started working with Paige from The Bird Team and within 1 week Paige found us the perfect home that suited our needs. She was very knowledge...

Lance & Brenda

My wife and I had a great experience working with Paige! She was ALWAYS available to answer our many questions, often at very early or late hours. On the rare occasion she didn't have an answer, she would find us the answer within minutes! She is ...

Steve & Micki

Joel is an honest and straight forward agent. Takes the stress out of all transactions, understands the market, a true asset to buyers and sellers alike. Have bought and sold with Joel and will suggest to all of my collegues and friends.

Jason Killebrew

Joel was very professional during the whole process. I appreciated his quick responses to my calls and texts. I felt he was really helpful without being pushy. He took the time to listen to my concerns and answer my questions. I would definitely r...

Aeme Skelton

Scott provided me with a lead on an investment property that turned out to be just what I was looking for. I quickly cleaned it up a little and he put it on the market to flip it. Within a month I had multiple offers and was able to close with a v...

Tom Comstock

Scott's knowledge of market conditions and realities of the market was a big help in deciding whether the offer was reasonable and should be considered. Scott was very even handed in dealing with the issues of the sale and dealing with the facts n...

Joe

Scott is the best realtor in the area he helped me out of several problems with my loan and several other things involved with my purchase. I'm in California it was hard for me to expedite the things that I needed to in Utah and Scott and his tea...

Kevin

Read More Testimonials »