Stop me if you’ve heard this before: mortgage interest rates are at historic lows. No? You haven’t heard? Then you must have been out of the country; like perhaps the South Pole. All kidding aside, it seems that lenders everywhere are touting their low rates at every opportunity and every platform. So much so, that I think the public is somewhat immune to this constant barrage of ads. But they shouldn’t be; an interest rate is much, much more than a monthly payment. It’s power.

Interest rates hit a low back in January of 2012 and have been creeping lower ever since. While mortgage companies have been frantically busy with refinancing their customers, what’s overlooked is how much home you can buy as a result of these low rates.

For example, say a couple makes $10,000 per month. Using today’s interest rates for a 30 year, fixed rate loan at 3.50 percent, they could qualify for a loan around $630,000. With a 20 percent down payment the sales price would be around $787,500.

Now take a long journey back in time to say, oh I don’t know, 24 months ago? Mortgage rates then were closer to 5.50 percent. What can that same couple making $10,000 per month afford? Try a $500,000 loan. With a 5.50 percent 30 year fixed rate, standard debt ratios and a 20 percent down payment the sales price is closer to $625,000. The sales price is actually lower than their qualifying amount with today’s rates.

Final step. Search properties anywhere in downtown Chicago and compare homes selling for $625,000 and those closer to $800,000. See the difference? I thought you could. That’s the power of rates.

What does that mean? It means with each tiny bump in interest rates your buying power is diminished. We’re no longer at historic lows. Rates are slowly moving up as you read this, and your ability to buy a bigger home is slowly vanishing.

 

The Hancock Group with @properties specializing in downtown Chicago Real Estate including The Gold Coast, South Loop, West Loop, Streeterville & Lincoln Park for over 10 years. Call/Text/Email Us today at 312-296-9300, or Find us on Google+