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Navigating the Market::

What do low interest rates mean for you?

OH MY GOODNESS WE HAVE HISTORIC LOW INTEREST RATES!!!!

Yea ok, but what does that actually mean for me?

In 2021 the average mortgage interest rate for a 30 year fixed loan was 2.79%. The average in 2019 was 4.75%. Lawrence Yun, chief economist at the National Association of Realtors, expects this year average to be at 3.7%. Interest rates are creeping up, and part of this can been attributed to expected inflation.

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What is the effect on the housing market?

The uptick in interest rates will help stabilize the market a bit. In 2021 we saw houses getting anywhere from 2 to 22 offers the first week they were on the market. These higher interest rates will lower the number of buyers which means there will be less offers on the offer review date. There were also buyers waiving all contingencies to get their offers accepted. With a trend of less offers on review date, buyers will take less risks when it comes to waiving contingencies. We’ll see if the trend of waiving inspection continues this year.

How does this effect my mortgage payments?

On a more individual level, low interest rates mean a lower monthly payment. Let’s take a home on the market for 600k. We will assume the buyer puts down a 10% down payment. For ease of calculation, we will assume zero discount points. This makes the loan amount 540k. With a 30-year fixed loan, your monthly payment with a 2.79% interest rate (the average in 2021) is $2,216. At the time of writing this the interest rate is 3.27% which makes your monthly mortgage rate $2,357. If the rates continue to tick up (which is what we expect) to the projected average (3.7%) you will be paying $2,486 per month.

How much would I save with lower rates?

Over 30 years you would pay around $97k more with a 3.7% interest rate vs a 2.79% interest rate. This is a crazy swing considering these two rates are only a year apart. This is why buyers went crazy in 2019. Not only new buyers, but lenders were busy with people wanting to refinance their homes. I suggest to everyone to take advantages while these rates stay low and below 4%. This is an exciting time for home buyers, jump in while the water is warm.

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