Interest Rate Trends from past 3 months to 26 year
I found a website with some very interesting graphs tracking interest rates over the years. It was so informative and interesting that I knew I had to post them here. As posted in a previous blog article, the interest rates that borrowers will receive when purchasing a home is just as important, if not more important, as the purchase price of a home. In other words, for buyers who are relying on financing to buy a home:
Low Home Prices + Low Interest Rate = Good Deal
Too often, during this period of low interest rates, buyers don't realize how amazing interest rates are, how much interest rates influence affordability and that interest rates can increase much faster than home prices. These graphs and the following examples should help illuminate these principles:
3 Month Interest Trends:
As you can see, over the past three months, rates have dropped from 4.75% to 4.19%. On a $125,000 30 year FRM the difference of just .5%, between 4.25% and 4.75% is about $40/month and over $12,000 over the life of the loan. If the loan amount increase to $300,000, the .5% difference in interest rate causes payments to increase $85/month and over $32,000 during the duration of the loan.
1 Year Interest Trends
In this graph, it shows that interest rates were hovering around 5%. On the $125,000 loan, the .75% difference causes monthly payments to increase $55, and $19,000 over the life of the loan; and for the $300,000 loan, $130/month and $50,000 over the life of the loan.
3 Year Interest Trends
This graph shows that interest rates averaged about 6.25% three years ago. ON the $125,000 loan, the 2% difference from todays interest rates increases monthly payments by $150/month and $55,000 over the life of the loan; and on the $300,000 loan, $365/month and almost $135,000 over the life of the loan. 6.25% is what many of the analysts and professionals believe the rates will raise back up to in the near future.
26 Year Interest Trends
Can you believe that many people we know, maybe even some of us, agreed to pay between 12% and 14% interest on a mortgage?! Even though rates will probably not go that high again unless some unforeseen situation takes place, rates going up to as high as 9% is a very real possibility. The difference in 4.75% on the $125,000 loan increases monthly payments by $385/month and $140,000 over the life of the loan; and on the $300,000 loan, over $900/month and $335,000 over the life of the loan.
These graphs and following calculations should verify how important interest rates are in determining the best time to buy. Even if prices drop another 5% over the next 12 months, but interest rates go up even .5%, the best time to buy will have past. Many analysts are expecting the market to stabilize and interest rates to slowly go up. There is a good chance that the best time to buy will be past us by this next summer.
Let me know if you have any questions. I hope this article was helpful.
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