Interest Rates

One factor that can largely dictate whether or not it is a good time to buy real estate is the almighty interest rate! Understanding where they have been and where they are headed is vital in pulling the trigger on buying a house. So, where are they going (UP) and why? 

Interest rates are extremely important when borrowing money of any kind. If you read the previous post on cost vs. price, you know exactly what rising interest rates do. If you haven’t , go back and look at that post. A rise in interest rates of only 1% can significantly increased both monthly and total interest over the life of the loan.

So where were they? Well, rates have been  lower over the last two years that they have been

in decades. If you were buying and the bank was lending you money, they were practically giving it to you. To put it in perspective, in 2000 when I bought my home, interest rates were close to 9%.

Today they are 4.75 roughly. That is almost half! What a difference that made when I refinanced!

Where are they headed and why?  They are headed north my friends. I won’t sit here and tell you that I have a crystal ball or an inside track to the fed.  But I do subscribe to some real estate economist organizations and from what I read, 2011 will be volatile. Don’t expect to see 3% or 4% jumps b/c that is not likely to happen. We will probably bounce around between 4.75 and 5.55 most of the year. I have also heard by the spring of 2012 we will be at or above 6%.  It does not sound like much, but remember, even a .75% increase will raise your home loan by 8% on a monthly basis. Here are some things that affect the mortgage interest rates:

·         Inflation = bad for rates

·         More jobs is inflationary = bad for rates

·         Strong stock market = bad for rates

·         Weak dollar  = bad for rates

·         Consumer confidence is good for stock = bad for rates

Bottom line is that you get more for your money when rates are low. Look at what you can afford at today’s rates and do the math on a 1 to 1.5% increase in interest rates.  That will give you the best picture on whether or not you need to act sooner or can afford to wait until latter.