Many factors impact how much you pay each month for your mortgage. Your amount financed, down payment percentage, property taxes and interest rate all have a profound impact. Those who close with less than 20 percent down will be paying private mortgage insurance each month until they accrue at least 20 percent equity in their home. Those who live in affluent neighborhoods may face steeper property taxes.
Your interest rate also has a direct impact on your monthly payment. When you’re talking about hundreds of thousands of dollars borrowed for a term of thirty years, a fraction of a percent makes a big difference. That’s why some people spend thousands of dollars up front to buy down their interest rate.
Thankfully, if you’re in the market to buy a home or are considering refinancing, right now is a great time to do so. Mortgage interest rates are at a low point for 2017, which means locking in a rate now is likely to save you thousands of dollars over the life of your mortgage.
Low Prime Rate and Slow Growth Benefit Buyers
The prime rate, set by the Federal Reserve, has been at incredibly low levels for years. This was a recession-era policy, less fitting now that the economy is growing. Although the Federal Reserve is discussing the possibility of an interest rate increase, rates current remain quite low from a longer-term perspective. Combine that with slower than anticipated growth in recent months, and you have a perfect storm for a low mortgage rate for purchases or refinances.
For people in the market to buy a home, slower growth and low returns on long-term Treasury bonds could mean lower monthly payments. Especially in the first years of a mortgage, a substantial amount of your payment is going toward the interest that will accrue over the life of the loan. The lower the interest rate for your mortgage, the less interest you accrue. Lower interest rates can make your mortgage more affordable. Conversely, the higher the mortgage rate, the more you’ll pay for a mortgage of the same dollar amount.
Home Prices Are on the Rise, Making Now a Great Time to Buy
You don’t want to wait until prices surge up even higher. Buying a home in the near future means locking in the current mortgage rate and buying while prices look to continue growing. That means that your home’s value will continue to increase. Of course, these higher prices are due in part to high demand. Nationwide, and especially in the Seattle markets, demand for real estate is massive. Investors and homeowners alike are making aggressive offers on all kinds of properties. So long as demand for housing continues, prices will likely also continue to grow over time.
Given that the Federal Reserve is actively discussing increasing the prime rate, it’s likely that mortgage rates will increase in the near future. When that happens, you could end up paying a lot more for a home in the same price range. The more that mortgage rates climb, the bigger the increase in monthly payments for you, the buyer.
Basically, the longer you wait, the more you’ll end up paying for a home. With prices on the rise and the possibility of an interest rate hike in the near future, your monthly payment could buy less home if you wait a year to buy.
Refinance Mortgage Before Rates Go Up
For those who already own a home, now is an ideal time to refinance. You can lock in the low current rate, which could reduce your monthly payments. Although there are expenses involved in refinancing, the amount of money you could save over the life of your mortgage more than cover those costs. Take advantage of current mortgage rates by refinancing while they remain low.