Homebuyers Take Advantage of Record Low Mortgage Rates
2020 has sent every industry on a rollercoaster, especially residential real estate. During the lockdown, sellers pulled their homes off the market and buyers postponed their showings. The economy cautiously reopened and pent up buyers were ready to resume their house hunt.
Besides the 6-foot distance rule and normalizing face masks, the pandemic brought on major reduction in mortgage rates. When we say major, we mean major. The average rate for the past five years was 4.05%, right now you can get a mortgage rate as low as 2.6%. This is the lowest we have seen in decades.
A mortgage rate is essentially the amount it costs to borrow money from lenders. When a homeowner pays their mortgage each month, the money goes towards paying off their home as well as paying interest to the lender. At first, most of your mortgage payment will go towards interest. Over time, more of your monthly payment will go to your loan instead of interest because the amount owed has decreased.
So, how does a lower interest rate affect homebuyers? To put it simply, right now it costs significantly less to borrow money to own a home than it has for decades. For example, let’s say you decide to put an offer in on the fabulous townhouse you’ve been eyeing for $250,000.00 and put 20% down. If your mortgage rate is 4%, for the first 5 years an average of $625.00 per month goes towards interest instead of your principal. Now if your mortgage rate is 2.8%, for the first 5 years an average of $425.00 per month goes towards interest and more towards paying the principal balance of the loan
In many cases, this could equate to more purchasing power as well. With lower interest, a buyer may be able to increase their budget anywhere from 10k-20k which would only increase his or her mortgage payment by fifty to a hundred dollars. This could make the difference between buying a house you like and a house you absolutely love.
A surge of mortgage applications was observed this summer along with extremely low inventory. Bidding wars have made a comeback as well and new home builders are experiencing an influx of interest because there are not enough resale homes on the market.
In Tampa, a 2-bedroom townhome rental will be around $1500.00 or $18,000.00 per year. Landlords and apartment complexes increase monthly rent each year anywhere from $70.00 to $125.00. Meanwhile, a mortgage for a single-family home could be somewhere around $1400.00 and with zero increase. If you have good financial history and stable employment, it may be time for you to take advantage of this amazing opportunity to become a homeowner.