Buying more home for your money
We’ve been hearing about the historically low interest rates for more than a year now, and how that is beneficial to people looking to buy real estate. I’ve always understood the concept, but never truly grasped how much this meant until someone drew it out for me.
“First time homebuyers don’t realize that when they buy a place, they shouldn’t just calculate the face-value price of the home,” says realtor Jon Yamasato of Prudential Locations. “They need to consider what their monthly mortgage payments will be, to fully understand what they will be able to afford.
“Low interest rates equate to lower monthly mortgage payments and higher purchase prices,” Yamasato explains. “If you have a set budget in mind, this means you may be able to afford a bigger home than you had thought.”
He adds that it’s still good for home sellers, as low interest rates allow more buyers to qualify to purchase your home.
For example: If you are looking to buy a $600,000 home, put 20 percent down and get a 30-year fixed mortgage, at today’s interest rates you would be paying $2,160 per month. If the interest rates were high—like at 6.5 percent—your monthly payments would be $3,030.
Conversely, if you can afford to pay $3,000 a month for your mortgage: if you were planning to buy a $600,000 home, you can now get something in the $800,000 range and have that same monthly payment.
The chart below illustrates how different interest rates affect your mortgage payments and buying power.
Yamasato adds that you should check with your realtor to keep current on interest rates, which fluctuate daily. To see the latest real estate report from Prudential Locations, click here.