If spending more time at home lately has you wishing for extra elbow room, a different floor plan, a bigger kitchen, or any other particular housing feature; you’re not alone! Many Americans are looking into the possibility of purchasing homes that have room for a home office, fitness studio or rec room; others long for a back yard, or even just a fresh start. While aspiring homebuyers may have different motivations, they do share a common advantage thanks to today’s historically low interest rates equal increased buying power!
Low interest rates are a big advantage when purchasing a home. Your interest rate affects the total amount that you’ll ultimately pay for your home. However, it also has a more immediate impact on your buying power.
Mortgage interest is the cost of taking out a loan. It is the amount a lender charges for taking out a loan to purchase a residential property. Interest is a percentage of the loan amount and is added on to the total cost of the home. With a higher rate, you’ll pay more interest over the life of your loan, which increases the total cost of your home purchase. On the other hand, securing a lower interest rate will reduce the cost of borrowing and the total amount of interest that you’ll pay, enabling you to pay less for your home.
Buying power, refers to your ability to get value for your money. Interest rates have a huge impact on that. With a home loan, the cost of paying interest is factored into your monthly mortgage payment, and it can have a major effect on your housing budget. For example, 2 homebuyers can be looking to purchase a home at the same price but with 2 different interest rates and end up with completely different outcomes. If the first homebuyer has a higher interest rate, they will pay more interest and their monthly mortgage rate will be higher. If the second buyer locks in a lower rate, their payments will be lower as they will owe less interest.
If both buyers are looking to pay the same monthly mortgage payment, the second buyer will be able to afford more house for the same monthly payment. The first buyer will be paying more in interest and will therefore, have less to spend on the actual home.
You may not think that a single point makes a big difference, but in fact, according to My Mortgage Insider, a one percent rise in your interest rate will reduce your buying power by a whopping ten percent! So seize the day, now is a great time to buy and our McAdams Homes at The Landing at Lewis Creek are calling to you!