Your most important financial concerns when buying a house are likely to be the purchase price and the downpayment.
However, these expenses are just one part of the overall financial picture. After you close the deal, there are many other numbers to consider.
The most important of these numbers is your mortgage interest rate and how it will affect your finances.
Continue reading to learn more about the importance of interest rates when buying a house in Fort Lauderdale Florida.
Why Interest Rates Matter
The mortgage interest rate affects your monthly mortgage payment and, ultimately, the total amount you pay for your home. Let’s find out why interest rates are important for homebuyers in Fort Lauderdale Florida.
For example, let’s suppose that you began your home search process at 4% interest rates. You found a condo with one bedroom for sale at $100,000.
Your 30-year mortgage payment was calculated at $80,000. You would pay this amount after closing costs and a 20% down payment. Your monthly payment would then be $382.
Waiting for interest rates to fall will likely result in rising prices. $120,000 for a “condo” in the neighborhood you choose now.
After paying 20% and closing costs, you will have a mortgage of $96,000. The monthly payment for a 30-year loan is $355. Your monthly payment decreased by [only] 27%.
When buying a home, interest rates are very important. “Mortgage rates impact more than just the interest that you pay over the term of the loan. Your fixed rate is also a key factor in determining your home buying power, which is how much you can afford to buy a house.
How Interest Rates Affect Your Buying Power
Let’s look at how interest rates affect your purchasing power when purchasing a house or condo in Fort Lauderdale Florida.
In August and September 2019, interest rates fell to near-historic lows. The September low was 3.5% on a 30-year fixed rate mortgage.
This rate would allow you to buy a home that is more than $400,000 with a monthly payment of only $1,500 (excluding taxes and insurance).
If rates had been higher than 4.6% one year before, the same monthly payment would have allowed you to buy a home for less than $375,000 in a previous year.
Industry experts say that your purchasing power can either increase or decrease with every 0.125% increase in mortgage rates.
With interest rates still low and rising, industry experts believe now is a good time to buy before rates rise even further. To get advice about local markets and when it is best to buy, contact Sellers: 954-281-7487
Buyers: 954-247-4285 a Fort Lauderdale Florida representative.
An Example for Buying a House
Let’s look at an illustration to illustrate how interest rates can affect the cost of a house.
A mere 1% reduction in interest rates could result in a $30,000. A mere 1% reduction in interest rates can save you $30,000. This is an example…
Steve is a homebuyer with a monthly gross income in the range of $5,000 and expected monthly debts of $2,250. His debt-to-income ratio is 45%. Steve gets $250,000.
Fixed loan for 30 years. He pays 4% interest each month for principal, interest, taxes, and insurance. The cost would be $1,193.
But what if Steve could get a 3.5% interest rate on his mortgage instead?
“A half-percent rate reduction increases Steve’s purchasing ability by $15,000; this assumes that $1,122 would be the maximum payment he is able to afford. . . Steve’s rate of 3% would bring his monthly payment down to an astonishingly low $1,051. It increases his buying power by $30,000.
What It All Means
You probably know that interest rates impact the monthly mortgage payment you will need to make when buying a house. You may not have known that most of your monthly mortgage payments go toward interest and very little toward principal.
“Early in a 30-year-old mortgage, more than 95% of a buyer’s monthly payment goes towards interest. The mortgage rate is lower, so the interest you have to pay will be lower. A lower monthly payment means that the home will be more affordable month-to-month.
This is how it boils down: “If a certain monthly payment is affordable based on your income, you may be able to take out larger mortgages if interest rates drop.”
The Final Step Toward Buying a House
For anyone thinking of buying a house, interest rates are crucial. However, the sad truth is that interest rates were rising from near-historic lows just a while ago.
Therefore, getting the home you want to be priced correctly is becoming more crucial. An experienced agent in your area will be your best option for a fair price. Contact us at Sellers: 954-281-7487
Buyers: 954-247-4285 if you’re interested in purchasing a house or condo in Fort Lauderdale Florida. Rent-to-own homes is also one of the best ways to start living in your dream home. Ask one of your agents about our rent to own program.