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Financing and Interest Rates: Should You Capitalize on These Rates?

By in News

To say that it is an interesting time in the home-buying and selling world is an understatement. Even if you were not in the market to buy or sell, it was nearly impossible not to notice last year’s record-low interest rates (turns out this was a fairly cheery upside to the chaos of 2020). But it left many scratching their heads, wondering, “What exactly does this mean for me”?

Wait, let’s pause and rewind a bit.

Last year, we saw staggeringly low interest rates of less than 3%, which, for context, was relatively unheard of. As homes became our sanctuaries and millennials fled their city lives in favor of stretching their legs, the combination of low-low rates and a desire for more space led to tooth-and-nail competition. Meanwhile, folks hurried to capitalize on these rates and refinance their home by swapping out their existing, more expensive home loan for a less expensive one.

Homeownership was now more accessible to the public than it had been in many people’s lifetimes.

A low interest rate can make the difference in purchasing a home. What does this mean in terms of dollars and cents? Here are a few scenarios that help illustrate the impact interest rates can have on buying a home:

Scenario I

Cost of the Home: $900,000

Interest Rate: 2.5%

Your Payment Per Month: $3,670

 

Scenario II (half a percent increase)

Cost of the Home: $900,000

Interest Rate: 3%

Your Payment Per Month: $3,861

 

Scenario III (full percent increase)

Cost of the Home: $900,000

Interest Rate: 4%

Your Payment Per Month: $4,262

 

Over the last 3 years, we have seen a period of up to a 31% change in rate. In 2018, we saw an average rate of 4.54% , 2019 brought an average rate of 3.94%, and 2020 with an average of 3.11%.

So, will the same trend continue in 2021?

Greg McBride, Chief Financial Analyst of Bankrate.com says, “‘It will be an especially volatile year for mortgage rates, with fixed rates falling to even lower lows early in 2021 on economic concerns but rebounding in the back half of the year as widespread vaccinations lead to a surprisingly strong surge of economic activity.’” Mortgage rates are forecasted to average 3.1-3.3 percent in 2021.

The long and short of it: Interest rates continue to defy expectations as we dive headfirst into 2021. While those numbers will continue to slowly inch their way up, home buying will remain attractive. Families will more comfortably extend their budgets as they look to settle into their perfect home. While that might mean lower inventory for now, your dream home is out there – and that’s where we come in.

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