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Mortgage Interest Rates Fall to a Historic Low


Interest rates fall lower on a daily basis in today’s real estate market, according to a recent Wall Street Journal (WSJ) article. Historic lows have led to optimism, but thus far they have yet to supercharge a sluggish market. There is worry that more expensive mortgages could hurt an anemic housing market, while refinancing, which makes up the bulk of mortgage activity, stimulates consumer spending.

According to another WSJ article, “Refinancing drove consumer spending before the crisis, when homeowners treated homes like piggy banks. And it still can save homeowners meaningful sums. That said, low rates don’t pack as much punch now. A dearth of home equity and tighter underwriting standards deter many would-be borrowers. The final quarter of 2011 saw the cheapest mortgages ever, spurring $281 billion in refinancing. Yet that was $79 billion below a year earlier, when rates were far higher and a third of the peak in early 2003.” This caution among potential homebuyers is not surprising given the recent foray the U.S. has taken into financial instability. It may take more than falling interest rates for many Americans to forget how close the U.S. came to the brink in 2008.

However, for those who are ready to take the plunge and become homeowners, the historic low rates do offer some significant perks. For example, they will allow you to buy a more expensive home with the same monthly payment. However, you cannot expect a scenario where interest rates fall endlessly. Eventually, the sustained historic low-rate environment will motivate enough buyers to enter the market, which should lead to a rise in home prices, and eventually rate increases.

How else do low interest rates help homebuyers?

Your home will ultimately cost far less:
A decrease of one or two percentage points off of your rate can slash thousands of dollars off the price you ultimately pay for your home. The difference between your purchase price and anticipated final price is the extra interest you pay the bank. Check our mortgage calculator to see what a drop in a few percentage points can do to monthly payments.

You will make lower monthly mortgage payments:
Mortgages are often very expensive enough as it is. A lower interest rate can mean a lower monthly mortgage payment on a given home. This will allow you to keep few hundred extra bucks every month to put in a savings account for house-related repairs and projects (or it can buy a nice celebratory bottle of champagne!)

You will be locked into a low rate for the long term:
Assuming that your mortgage is a fixed rate, you will be insulated from any escalation of interest rates. The pendulum of historic lows may eventually swing back to much higher rates. If you have secured a nice low rate, you can kick back knowing you are that much more financially secure.

You may be able to afford a more expensive home:
When interest rates fall, you can expect lower monthly payments, which means that the size of the mortgage you qualify for may be higher. This means that you may be able to acquire a larger home in a better neighborhood than you expected. Add the current stagnating real estate market, and the time to find a dream home might never be better.

While the above WSJ article was exceptionally tepid in its enthusiasm, the historic low mortgage rates are an opportunity for those looking to begin or continue the American dream of homeownership. For more information about mortgages, refinancing, home equity loans and more, check out Chicago Mortgage Spot today.