In the Federal Reserve’s latest attempt to keep the economy going during the coronavirus pandemic, they have taken interest rates all the way down to zero. They feel like desperate times call for desperate measures. So what do these latest rate cuts mean for today’s homebuyers and today’s homeowners?
Is It Time To Buy?
Current trends are creating a fabulous buying opportunity for anyone shopping for a new home. Lower interest rates means that people can afford more house than was possible just last year. Yes, inventory is down and there is a lot of competition, but these lower rates are making home ownership more affordable than it has been in over a decade.
Rent prices are rising as the demand for housing is growing. That means by purchasing a home now, you could actually lower your monthly housing costs by buying instead of renting. Also, you could consider a home mortgage payment as a forced savings account. Paying down your mortgage in combination with the increases in value of your home over time will be a winning strategy for you. Just think of it as paying yourself first by building equity.
Let’s look at what a 1% drop in interest rates will do to a mortgage payment. If you had a $300,000 loan at 4.5%, the monthly payment would be about $1,520 per month. The same loan at 3.5% will have a monthly payment of only $1,347, saving you on average $173 per month. Times 12 months, this lower rate could add up to over $2000 a year.
Is It Time To Refinance?
For people that already have a home mortgage, a refinance could be a great way to boost their finances. Almost everyone that already has a mortgage is paying at a rate that surpasses what is available right now. If refinancing makes sense, this could be an opportunity to keep more of their money in their pockets each month. The potential savings could add up to thousands of dollars in savings over the life of your loan.
Refinancing rates are now below 4% on a 30-year mortgage. It’s around only 3% for a 15-year mortgage. Even if you just refinanced last year at 4.5%, it may be time to consider refinancing your mortgage again to today’s lower rates. This is something to consider whether your income has been affected by the pandemic or not.
Before you decide to refinance at today’s lower rates it is important to consider closing costs on your new loan. If you are planning on selling your home in the near future, you may want to hold off on refinancing. If you would have to pay closing costs of $2,400 for example, it will more than likely take you 20 months at your new mortgage rate to break even.The Possibilities!
What could you possibly do with a beautiful new home or a lower interest rate than you currently have? And remember, you would also have extra money in your pocket each month for a few new personal upgrades. Is it time to also get a new car (only consider this after you secure your new mortgage)? Or maybe you can afford to completely refurnish that dining room? How about adding a laser projector for your man cave? The possibilities may be endless now that the cost of home ownership is so much lower due to today’s lower interest rates. Talk to a realtor or loan specialist today and explore the possibilities of purchasing or refinancing.