Today aside from a snack or a cup of coffee, very little is bought with just cash. More and more we turn to credit cards for everyday spending. Consider large purchases. Very few people go out and purchase without the use of a loan, particularly home buyers. Cash is needed for a down payment and closing costs but financing the purchase of a home is a multi-trillion part of our economy. This is why knowing current interest rates and understanding how interest rate changes affect you is important.
The History of Interest Rates
During my real estate licensing classes, the instructor made a point about the history of interest rates. I’m a child of the ’70s and I remember the gas lines. What I don’t remember, or had an idea of, were the double-digit interest rates that were standard to the industry. Houses may have cost less, which is only because the cost of living was different at that time, but interest rates were punitive. Imagine buying a house today with 10%-15% fixed interest rates? The current national median home price is $293,000. Buyers typically use a 30 year fixed rate loan. For a purchase of a $293,000 with a 10% interest rate would be $2,571. With today’s current rate the same home would have a monthly payment of $1,385.
Interest Rate Changes
As such, keeping an eye on interest rate changes is important if you are buying or selling a home. As rates adjust (and they do all the time) it will influence consumer behavior. If rates go down, even marginally, or stay steady for a solid period with no sign of increase (from the Fed), buyers are more willing to explore a home purchase. As such, sellers are in a position to command a price. But, if the market sours and the rate climbs that same marginal or whole point, sellers will find themselves in a downside position. Especially if they are in a situation that requires them to sell. Suddenly, their property went from being an asset that would create positive gains to a set of financial handcuffs.
Don’t Let Rate Changes Scare You
When buying or selling a home, it is best to be uninformed. Talk to your local realtor. Pay attention to the headlines. Talk to a loan officer at your local bank. If you’re unsure about how interest rate cuts or increases, set by the Federal government, affect your plans for buying a home – here is an article that will give you some additional insight.
If you have questions or want to explore the three simple steps to selling your home, give us a call.