Mortgage Rates Are Dropping. What Does That Mean for You?
Mortgage rates have been a hot topic in the housing market over the past 12 months. Rates have risen dramatically since the beginning of 2022. Now they're dropping, and that has to do with everything happening in the economy.
Nadia Evangelou, Senior Economist and Director of Forecasting at the National Association of Realtors (NAR), explains it well by saying:
“Mortgage rates dropped even further this week as two main factors affecting today’s mortgage market became more favorable. Inflation continued to ease while the Federal Reserve switched to a smaller interest rate hike. As a result, according to Freddie Mac, the 30-year fixed mortgage rate fell to 6.31% from 6.33% the previous week.”
So, what does this mean for your home-buying plans? Mortgage rates fluctuate, affecting your purchasing power by affecting the cost of purchasing a home. Even a minor drop can help you increase your purchasing power. This is how it works.
The median-priced home according to the National Association of Realtors (NAR) is $379,100. So, let’s assume you want to buy a $400,000 home. If you’re trying to shop at that price point and keep your monthly payment about $2,500-2,600 or below, here’s how your purchasing power can change as mortgage rates move up or down (see chart below). The red shows payments above that threshold and the green indicates a payment within your target range.
This demonstrates that even a quarter-point change in mortgage rates can have an effect on your monthly mortgage payment. That is why it is critical to work with a reputable real estate professional who is aware of what experts predict for mortgage rates in the coming days, months, and years.
Mortgage rates are likely to fluctuate in the coming months depending on what happens with inflation, but they have dropped slightly in recent weeks. If a 7% rate was too high for you, contact a lender to see if the current rate is more in line with your monthly housing expense goal.
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