Low Interest Rates-What does that really mean?

In October of 2019 you could finance a $400,000 house with a 30 year fixed loan at 4% interest. Seems pretty great, right?! Well if you look at just the principal and interest payment, assuming 5% down, your payment October 2019 would have been $1,814.18. But now in October 2020 we are looking at interest rates of 3% or under on a 30 year fixed loan with 5% down. That being said you could buy a $450,000 house in October 2020 with putting 5% down and finance the home on 30 year fixed loan at 3% and your principal and interest payment would only be $1,802.36.

That’s pretty awesome! In one years time, you could afford a house that is $50,000 more and end up paying a couple dollars LESS per month. So what is driving the reduction in monthly payments? Interest Rates!!! The lower the interest rates the less your monthly payment will be and the more house you can afford. I hear a lot of grief about the cost of homes and how quickly prices are going up. Even if home prices are increasing, you can still afford the same house a year ago as long as interest rates remain the low.

Here is a quick recap breakdown:

Tacoma Oct 2019

$400,000 Purchase price

$20,000  Down Payment (5%)

4% 30 yr fixed

$1,814.18/Month Principal & Interest only

Tacoma Oct 2020  

$450,000 Purchase price

$22,500  Down Payment (5%)

3% 30 yr fixed

$1,802.36/Month Principal & Interest only

So in one years time interest rates have dropped 1% and this allows you to purchase a home that is $50,000 more expensive. Now is a great time to purchase a home and lock in a low interest rate. Keep in mind your monthly payment will also need to include insurance and taxes 🙂