Understanding what interest rates are and how they work is very important when buying a home because interest rates help determine how much home you can afford. Interest rates are the percentage charged on the total amount borrowed for a home loan. It is the cost banks charge to borrow money to buy a home. Rates are determined by the national bond market where home loans are sold as bundled securities. Other factors that affect interest rates are global and national issues, economic growth, inflation, and overall housing market conditions.
Historically, rates have been pretty high, just ask some of the older generations. They will tell you all about having high rates and how easy it is to buy a home in this day and age. Today, even with a global pandemic housing is still creating great opportunities for many buyers. 2020 had a record breaking year with the lowest interest rates ever recorded. Some buyers locked in at a little under 2% by years end! Many buyers were happy to see their monthly payment less than expected and this year, many buyers will be just as lucky.
2021 started off with the same historically low rates and industry experts are saying interest rates will not exceed 3% this year. The averaging rate for this week according to Freddie Mac is 2.97%, which means a lower monthly housing payment and an ability to buy more house for less.
Getting the best interest rate depends on your credit score, how much of a down payment you put down, and what type of loan you qualified for will determine what rate you will get. A higher credit score with a larger down payment will get you the best score because the lender/bank will see you as low risk. Lower credit scores and low down payments may label you as “higher risk” from a lender, but your rate will still be locked in around the national average.
Buyers who take advantage of these historic low interest rates will not only enjoy a lower monthly mortgage payment but they will continue to build wealth and secure their financial future.