The Case for Today’s Interest Rates

You may have seen our recent post on why “‘What’s the interest rate?’ is a flawed question,” in which we pointed out that interest rates aren’t the only thing you should think about when considering a home loan. While there’s more to consider than interest rates, today we want to point out the ways that subtle rate changes can benefit you as a homebuyer.

We’ll cut right to it: Mortgage rates are looking really good right now. The average interest rate across 30-year conventional loans has dropped by 0.767% since the beginning of November.

Trend of weekly mortgage rates from October 1, 2018, through February 4, 2019.

Average rates sourced from Flyhomes data

Falling mortgage rates sound good, but if you’re not used to thinking about these numbers, it can be difficult to know at a glance what a change like 0.767% actually means. Here are three big ways today’s rates are good news for you if you’re looking to buy a home soon.

Lower Monthly Payment

The first benefit of today’s rates is a lower monthly payment. Flyhomes is headquartered in Seattle, so we’ll use Seattle to give an example. The median home value in Seattle at the end of last year was $725,700 (according to Zillow). Assuming 20% down and a FICO credit score of 720, buying last November would have meant an interest rate of about 4.875%. With today’s rates, you would be looking at around 4.125%. That’s almost $260 per month in savings! And the savings increase if your down payment decreases.

Example of how down payment amount affects monthly mortgage payments.

Increased Purchase Power

Another benefit, and one that shouldn’t be underestimated, is increased purchase power. As an example, imagine it’s early last November and you’re working with a budget of $3,500 per month for principal and interest payments. Assuming a similar financial situation to the one above (20% down and 720 FICO), interest rates for you would fall around 4.875%, putting your starting loan amount at $650,000. Today, with rates over 0.75% lower, you could afford a loan amount of $710,000 for about the same monthly payment. You just went from looking at a $780,000 home to a $852,000 home! That’s a $72,000 difference just from a fraction of a percentage.  

Increased Conforming Loan Limits

On November 27 of last year, the Federal Housing Finance Agency announced increased conforming loan limits for mortgages sold to Fannie Mae and Freddie Mac, the most common type of home loan. Across most of the US, the base loan limit increased from $453,100 to $484,350, and high cost areas like Seattle saw an increase up to $726,525. Considering the median home value in Seattle is $726,700, this is excellent news for most people looking to utilize the benefits of a conforming mortgage.

What this means for you is access to a simpler qualification process. Just prior to this change, the high cost loan limit was $667,000, and a loan amount over that limit would put you in the jumbo loan category, significantly increasing the complexity of your underwriting requirements. With the increased limit, you now have an extra $59,525 of wiggle room to help you qualify for the simpler loan program.

One Last Thought

There’s one more thing to consider: real estate market trends. In Seattle, the market tends to pick up beginning in April and stay hot through the end of the summer. With today’s rates offering lower monthly payments and increased purchase power, this is an excellent opportunity to get ahead of the summer frenzy. Subtle fluctuations can have a big impact on how and when you look for your new home!

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