What Does a Drop in Mortgage Interest Rates Mean for You?
The past year, mortgage rates have been a widely discussed issue in the housing market. As of early 2022, rates had risen noticeably from where they were previously and now they are dropping again. This change is due to recent events in the economy.
Nadia Evangelou, Senior Economist and Director of Forecasting at the National Association of Realtors (NAR), explains it well by saying:
“Mortgage rates dropped even further this week as two main factors affecting today’s mortgage market became more favorable. Inflation continued to ease while the Federal Reserve switched to a smaller interest rate hike. As a result, according to Freddie Mac, the 30-year fixed mortgage rate fell to 6.31% from 6.33% the previous week.”
Therefore, how does that Mortgage rates fluctuating affect your plans of owning a home? They play a role in the cost of buying a property by mortgage companies using them to calculate monthly payments. Even if there is only a small dip, it can help increase purchasing power. Let me explain further.
Most homeowners spend $379,100 on their dwelling according to the NAR. So, for example’s sake, let’s pretend you want to buy a home that costs around $400,000. If you’re trying not to go over your monthly payment limit of $2,500-$2,600 maximum and stay within that price point range while shopping , here’s how your purchasing power will be impacted by mortgage rates going up or down ( checkout the chart below). The darker shading red shows payments that are too expensive above that break-off point and the green displays lighter shade indicating a payment that falls within your pre set targeted affordable budget.
Even a seemingly small change in mortgage rates can have a big impact on your monthly payments. That’s why it pays to partner with a reliable real estate professional who is keeping tabs on mortgage rate predictions for the near and distant future.
Mortgage rates have been unstable as of late due to inflation, but they have slightly decreased in the past few weeks. If you found that a 7% rate was too expensive, it might be time to talk with a lender about what the current rate is and if it fits better into your monthly budget for housing costs.