The interest rate of a mortgage has a direct effect on a the amount a home buyer can spend on a home. For example, at today’s interest rates a buyer may be able to afford $150,000. But if the rate were to increase by one point, that same buyer may only be able to afford $125,000.
Interest rates are at their lowest point in history. The demand for money is in decline because of the economy. I found a great article by J.D. Roth with Get Rich Slowly, Personal Finance that Makes Sense that describes, in better detail, how the economy has impacted our current interest rates.
It is likely that interest rates will increase in the next two years. No one has a crystal ball, but with the value of the dollar also in decline it is likely we will see inflation and with inflation comes higher interest rates on loans. Purchasing a home now with a fixed rate loan while interest rates are low will ensure the avoidance of this pitfall.
What About House Values?
Another concern many potential buyers have is whether or not the market has hit bottom. Buyers do not want to buy a home only to see its value decrease in the coming years. I feel it is likely the market will be somewhat unstable for another few years and would not encourage anyone to buy a home if they feel they will have to sell in less than five years. Those who expect to be in their new home in excess of five years will likely see a turn in the market before they are in a sales scenario.
Make the Best Choice
Each individual scenario has its own best choice. With interest rates making such a large impact on buying power and monthly mortgage debt, I recommend purchasing versus renting if the need for housing is immediate and the intended occupancy is in excess of five years. I do not believe the current interest rates would have a beneficial effect on anyone who may need to sell their home in the next several years.
- Interest Rate Hike (ecopackindia.wordpress.com)
- How much do interest rates affect home prices? Hop in the time machine to see (sfgate.com)
- Mortgage rates on the rise. Why? (hsh.com)