Low interest rates mean greater purchase power

Over the past several years, we’ve enjoyed low mortgage interest rates. Unlike the early 1970s to early 1990s, when interest rates ranged from 7% to as high as 16%, the 2000s have been a time of relatively low rates. Historically, a rate of 6% is considered favorable. Today’s phenomenal rates, hovering near 5%, are the lowest we’ve seen in almost 40 years.

With interest rates this low and mortgage applications on the rise, it’s evident that many homeowners are taking advantage of this golden opportunity to refinance their current mortgages in the hope of lowering their monthly payments, consolidating debt, or shortening the life of their mortgages. A lesser known benefit of historically low interest rates is that your home-buying budget expands. In other words, low interest rates mean more purchasing power.

If you are like many would be home buyers, determining how much house you can afford begins with figuring out how much you can reasonably spend on a mortgage payment each month - and that’s where a lower interest rate really comes into play.

Let’s imagine you can afford $2,000 in mortgage payments each month. If you’d applied for a loan last year, when rates were near 6%, you would have been able to afford a $333,500 mortgage. With rates now hovering near 5%, you can now afford a $372,500 mortgage without increasing your monthly payments.

In these uncertain economic times, even real estate and finance experts are reluctant to make guesses about when interest rates will go up again. While we are all on the lookout for a better deal, with interest rates this low and more homes to choose from than we’ve seen in years, there is no promise that tomorrow will bring a better bargain. The time to maximize your purchasing power is now!