How Mortgage Rates Shift Homebuying Budgets
Why low interest rates can drive demand for homes sky-high.
Though we’ve been witnessing large fluctuations in interest rates for the past few years and their impact on the market has been quite clear, the idea still remains abstract for many. Especially when renting or if a home refinance hasn’t been on the brain, some people haven’t quite conceptualized what these historically low rates can actually mean for a home buying budget.
In many cases, it’s not only the difference between an “ok” home and a dream home. These rates can even make home buying or building possible for people who might otherwise not have been able to afford a mortgage.
Rising Rates
After a couple of years of historically low rates, mortgage rates are now back on the rise — but they’re nowhere close to the highest they’ve been.
The 2010s saw rates around 4%. In the 2000s, mortgage rates hovered around 6.3%. Earlier decades saw even higher mortgage rates, mainly in the neighborhood of 8-12%.
Today’s average rate for a 30-year mortgage? About 5.7%.
Interest in Action
In short, low interest rates give buyers more purchasing power. With a first step in the home search process being to determine a monthly budget, these numbers can make or break a house hunting effort. Interest adds up quickly to stack up on top of principal payments on the loan.
For example, taking out a 30-year mortgage on an average-priced home at $350,000 will result in vastly different monthly payments depending on interest rate. With the current average interest rate of 2.81%, a monthly payment would run about $1,440. However, with the 4% rate of the 2010s, that payment spikes upward quickly, to $1,671. At average 2000s-rates of 6.3%? Suddenly the same $350,000 home costs $2,166 per month.
Backwards planning from monthly budgets and available down payment constitutes an indispensable step in narrowing a home search, and the amount of interest on a loan is a major driver in what those numbers will ultimately look like.
Although the North Carolina market is competitive right now for buyers, each dollar in a home buying budget does hold more power than it has when rates were at their highest. With these rates, house hunters are more poised than ever to purchase homes that truly speak to their needs and priorities - and that will pay off in the long run.
To skip the competition without missing out on these historic rates, many buyers are turning to home building. No bidding wars, less compromise, and more control - it’s a win-win-win.
Ready to create the custom home of your dreams? Talk with the experts at Atmos to begin your building journey today.
