Monthly Archives: September 2015
If you’re in the market for a new home, chances are you pay close attention to home mortgage interest rates, and for good reason. When it comes to maximizing your affordability while keeping your monthly payments low, a low-interest rate offers increased flexibility in the way you approach home buying.
With interest rates poised to go up soon – even modestly – the most obvious impact will be on your monthly payment. Of course, higher interest rates result in higher monthly payments which generally means that the value of the home you purchase is generally less if you have a strict budget you need to follow. Small increases in interest rates, however, seldom become a deal breaker for new home buyers and they shouldn’t.
There are other important factors to consider when thinking about home loan interest rates:
- Today’s interest rates have remained at extraordinarily low levels for several years now. However, even a 5% or 6% interest rate is still very low by historical standards. Whatever the rate is when you buy, if you have an experienced loan officer, they will work with you to lock in a rate at the lowest rate possible. But don’t be surprised to see interest rates fluctuate day to day; there is no precise way in knowing when they will be the lowest in a particular month or week.
- Because interest rates are low and are expected to remain relatively low for some time, there will probably be plenty of homes on the market for a while. That’s because when interest rates are low, current homeowners are more willing to upgrade or downgrade so they have more incentive to sell in order to benefit from low interest themselves. That means you’re likely to have a nice sized inventory from which to select your next dream home.
- Higher interest rates mean you can recover a larger portion of your monthly payments in the form of a mortgage interest tax deduction. Document improvements along the way of homeownership as many improvements will be relevant to your taxes when you sell by lowering the amount of capital gains or taxable income you realize if you decide not to reinvest the earnings.
- Generally speaking, you come out ahead buying a home over renting, especially if you are going to stay in a location for two or more years. One rule of thumb is that it takes at four to seven years to gain enough appreciation for homeowners to come out ahead. By then, chances are your interest rate will play a role in how long you decide to stay in your home, along with other factors such as changes in income, job changes, and changing family needs.
Now is a great time to buy a home but if you have a longer timeline for home purchasing readiness, you can breath and get your financial picture in order. The interest rates aren’t going to skyrocket overnight and chances are you’ll be able to get a great rate when you’re ready to buy in the next year or two. But don’t wait too long. As interest rates rise, fewer owners will be motivated to sell so the inventory of available home will likely decrease. Happy home hunting!