Why Watching Interest Rates Can Help Your Bottom Line

Depending on your age, you may or may not remember when mortgage interest rates soared to 18.45% in October of 1981. Can you imagine? It is 1981 and you want to buy a home that is valued at $100,000. You put down 20%, but your mortgage payment is still $1,235.08 per month for principal and interest. If you didn’t refinance when rates dropped, you would have paid $364,000 in interest alone on this 30 year fixed rate $80,000 mortgage.

Mortgage interest rates have a huge effect on buying power and ensuing monthly payments. Let’s look back to our 1981 moment in time as compared to August, 2016 and assume we are obtaining a 100% loan on a new median sales priced home (and calculating principal and interest only on the loan):

  Mortgage Int. Rate Median Sales Price Monthly Payment Total Interest Paid
October 1981 18.45% $69,600 $1,074.52 $317,228.17
August 2016 3.44% $284,000 $1,265.79 $171,685.86

Of course, this is an extreme example, but isn’t it remarkable that it is only $191.27 more per month to buy a median-priced home today than it was 35 years ago at the respective interest rates?

Let’s look at a more-recent example – 10 years ago before the sub-prime mortgage crisis:

  Mortgage Int. Rate Median Sales Price Monthly Payment Total Interest Paid
August 2006 6.52% $243,900 $1,544.82 $312,236.40
August 2016 3.44% $284,000 $1,265.79 $171,685.86

In this case, it is $279.03 cheaper per month to buy a new median priced home priced $40,100 higher!

The near-historic low mortgage interest rates represent a unique moment in the market for buyers and for those considering refinancing. After years of keeping the short term rates at zero, the Federal Reserve raised rates for the first time last September and has signaled they may raise rates again at their December meeting.  These increases have an effect on mortgage interest rates which, in turn, has an effect on buying power. The below chart illustrates the average annual interest rates from 1972 to year-to-date 2016.


Don’t let this opportune time pass you by! The clock is ticking. Give me a call or text: (206) 327-1663 or send an email to jay@jayadams.realtor to learn more.

Sources: http://www.freddiemac.com/pmms/pmms30.htm


Courtesy of The Lones Group

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