Mortgage rates are dropping, potentially creating opportunities for homebuyers and refinancers. Learn more about the impact on the real estate market.
Mortgage Rates Declining
2023 was a challenging year for the mortgage industry. Mortgage rates increased drastically causing some consumers to pay up to 8% for home loans. This also caused a shortage in inventory, due to homeowners with low interest rates choosing not to sale their homes. However, Freddie Mac reports that the labor market US economy growth brought 2.7 million jobs in 2023, with the challenges our economy faced this was not expected.
Future looking brighter
Due to the higher interest rates in 2023, the annual housing sales for 2023 decreased and the lowest since 2012. According to Forbes 2024 will bring better interest rates with expectation to be 4%-5%. With interest rates lowering it will definitely positively affect growth in home sales. Housing demand will be inevitable. Demand for housing, however, “will remain high based on a large share of millennial first-time homebuyers looking to buy homes, which will push home prices up. We forecast home prices to increase 2.8% in 2024 and 2.0% in 2025 nationally,” per Freddie Mac. There is anticipation that new home purchases will increase and so will refinances for those who purchased with high interest rates in 2023.
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How does mortgage rates effect ability to purchase?
Mortgage rates directly affect the size of your mortgage payment. As interest rates increase, monthly mortgage payments will increase accordingly. At the beginning of a mortgage, payments primarily go towards paying down the interest rate on the loan, while later payments are put towards paying the principal and building home equity. Higher interest rates mean higher mortgage payments and vice versa. Loan costs are also a huge factor when shopping mortgage loans and can result in a higher APR which negatively affects your total monthly payment and the amount of interest you will pay over the life of the loan. Mortgage rate is what the interest the lender charges to purchase your home. So let’s look at how the difference of just 1% can affect your mortgage. 1% difference between a $200,000 home with a $160,000 mortgage increases your monthly payment by almost $100. Although the difference in monthly payment may not seem that extreme, the 1% higher rate means you’ll pay approximately $30,000 more in interest over the 30-year term.
Your monthly interest rate can be influenced by several factors.
Market Conditions: The overall state of the economy and financial markets plays a significant role. When the economy is strong, interest rates tend to rise, affecting your monthly rate. Central Bank Policies: Decisions made by central banks (such as the Federal Reserve in the United States) impact interest rates. For instance, when the central bank raises its benchmark interest rate, other rates, including mortgage rates, often follow suit. Credit Score: Your creditworthiness affects the interest rate you qualify for. A higher credit score typically results in a lower interest rate. Loan Term: The length of your loan (e.g., 15 years vs. 30 years) affects the interest rate. Shorter terms often come with lower rates. Loan Amount: Larger loan amounts may have different rates. Lenders may offer better rates for smaller loans. Type of Loan: Different types of loans (e.g., fixed-rate vs. adjustable-rate) have varying interest rates. Fixed-rate loans maintain the same rate throughout the loan term, while adjustable-rate loans may change periodically. Inflation: Inflation erodes the purchasing power of money. Lenders adjust interest rates to account for inflation. Lender Policies: Each lender has its own policies and risk assessment criteria. Shop around to find the best rate for your situation.
Remember that personalized rates can differ from average rates, so it’s essential to check what you qualify for based on your specific circumstances.
For more information on any of these homes contact:
Janice “The Real” McCoy
Radius Realty
904 S. 4th St.
314-337-9466
janice@radiusrealty.com
