How Historically Low Interest Rates Increase Your Purchasing Power

Calculating Interest Rates

There’s no denying it — now is a great time to be a new home buyer! You may ask why, with a pandemic still affecting the United States, and indeed the world? The answer is mainly that the interest rate for mortgages is at a historic low, and it seems like it will remain that way for the foreseeable future, but there are also other factors that come into play. Let’s take a closer look.

Variable Effect of COVID-19

COVID-19 has not only encouraged the Federal Reserve to keep interest rates low but has also reduced the number of houses available on the market, which in some cases may increase initial housing prices. However, with 30-year fixed rates for mortgages hovering at an all-time low, the rate you secure could greatly impact your buying power and more than offset these increases. According to Freddie Mac, rates have remained at or below 3.5% for several months, certainly constituting a historic low.

To give you some perspective on how important rates are when you apply for a mortgage, with each .25% interest rate increase, you will be able to afford 2.5% less when going to buy your new home ( For instance, on $100,000 that means $2,500 in affordability lost, with just a quarter of a percent increase in the interest rate.

With that said, it is certainly a smart time to consider buying a new home, especially if your newly created normal includes the need for extra space for a home office, exercise equipment, or your family’s home school.

Have you been wishing for just one extra room for you, your spouse and/or your kids to have their own study or workspace? Or have you started a new hobby or home business, and would love to be able to create a new space all your own? Your increased purchasing power may be calling your name to this opportunity — it’s a great time to be a buyer!

Timing Is Everything

If you are just getting ready to take your first leap into the housing market, you may be wondering what all the fuss is about, but if you have some experience in home buying and selling in the last couple of decades, you may remember a little different expectation when it comes to rates.

According to Freddie Mac, in 1977 you may have been asked to pay 8 percent for a 30-year fixed-rate mortgage — a bit higher than today, but it still sounds reasonable, right? However, things changed a great deal in short order.

Four years later the same bank was asking for a shocking 18 percent rate for the same mortgage!

So, if you want to take advantage of the increase in buying power that comes along with the low rates, now may be your best opportunity to purchase your new home. What could be smarter than making a sound financial decision, while increasing your family’s capabilities to work, learn, exercise, and just generally be together in a spacious new home?

What Can We Expect in the Near Future?

While expert opinions vary on how long the low rates will be in play, most agree that we can expect them for at least the next several months, with some saying years. It all depends on how our central bank determines to use monetary policy to keep our economy in good shape.

Greg McBride, chief financial analyst at Bankrate, stated in September 2020, “There is risk of an increase if the inflation numbers come in higher than expected. Not a high likelihood, but let’s face it, 2020 has been a lesson in low probability/high impact events.” However, some experts are more upbeat than others.

“Financial markets are kind of optimistic right now, so you could imagine rates coming down,” said William Emmons, lead economist at the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis, in an article on Bankrate. The Fed has set a pattern of keeping rates low in challenging times, Emmons says.

The Bottom Line

The year 2020 has brought and is bringing many things to the table — a historic pandemic, social unrest, a presidential election, and readjustments to many of our daily routines (school, work, dining out, shopping, etc.). The fact that mortgage interest rates are at historic lows can make this year a perfect time for buying a new home, with a substantial increase in buying power and savings over the long haul.

Now is the time to consider how having a beautiful, spacious new home at Brunswick Crossing could be just the thing you and your family need to create a success out of the challenges this year has laid at your feet. Whether you’re buying your first home or ready to take advantage of the low-interest rates after several decades in the market, your opportunity awaits!

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