Why Mortgage Interest Rates Matter—Especially To Novice Home Buyers

For many first time home buyers, the news of interest rates going up may not be enough of a motivation factor. If you’re one of them, let me help you put things into perspective. Imagine paying interest on your home that is almost equivalent to a major credit card. Well, that actually happened in 1981.

That year, newlywed friends of mine had decided to build their dream home in Eagan, MN. While the construction of their beautiful home was going on, the Federal Reserve was waging a war with inflation. Before they knew what hit them, double-digit inflation set in and the central bank drove interest rates higher. Mortgage rates topped out at 18.45%.

At the time, I didn’t quite understand the magnitude of that whole fiasco. As the rates climbed, I remember the fear and anxiety my friends endured and the uncertainty of a successful closure. In a recent interview with Arnette Awe, Realtor® of Woodbury, MN, I had mentioned this memory and lack of clarity. Without hesitation, Arnette gladly took the time to spell it out for me.

*Let’s say its 1981 and I wanted to purchase a house for $82,500 (the average cost of homes back then). Now factor the interest rate at 18.45%. Ouch, not sure I could have afforded the payments. Even after putting 20% down, my monthly payment would have been $1,019. And that doesn’t even include property taxes or insurance. Today, that amount would be over $2,500 per month adjusting for inflation.

With that said, now imagine if I wanted to buy a house today for $325,000. With 20% down and interest rates at 18.45% on a 30 year loan, my monthly payment would be $4,014 without taxes or insurance. So in reality, that would mean my $325,000 house would actually cost me $1,445,040.00 over 30 years (30 x 12 = 360 total payments). In both cases, 82% of my payments would only be applied to interest. Think about it, I could buy three more houses with the interest I’d be paying.

It’s no wonder my friends were freaking out! No definite closing date, escalating variable interest rates, fixed incomes. Talk about a nightmare.

Today interest rates are much lower, but they still matter. Varying percentages can make a big difference in your buying power. If you’re considering the purchase of a new home this coming year, I recommend that you have a conversation with Arnette Awe, Realtor® to discuss your opportunities. She’ll put your mind at ease and guide you every step of the way.

Thank you, Arnette Awe, for educating all of us on this subject.

Deb Vosejpka

debv@wispusa.com

651-274-0575

Arnette Awe

Realtor®

Berkshire Hathaway Home Services Lovejoy Realty

aawe@bhhslovejoy.com

952-200-2595

*lst Security Bank and Census Bureau

#Home Buyers, #Mortgage Rates, #Real Estate