Real estate agents: What today’s low interest rates mean for your buyers

Mortgage interest rates continue to hover at historic lows, representing a potential opportunity for homebuyers.

With the COVID-19 pandemic precipitating the most dramatic downturn since the 1940s, the Federal Reserve has been buying mortgage-backed securities to drive down rates. At the start of 2021, the average cost of a 30-year fixed-rate mortgage was 2.65%, according to Freddie Mac—an all-time low.

What does this mean for prospective buyers? For starters, it means they might be able to afford a more expensive home than they could otherwise. After all, a single percentage point can make a huge difference in the buyer’s mortgage obligations over time.

For example, a 30-year, $350,000 mortgage loan with 3.0% interest could end up costing $181,221 in interest over the life of the loan, with $1,475 monthly payments (not including taxes and insurance). By contrast, a 3.50% interest rate would mean monthly payments of $1,571, with total interest payments of $215,796. The lower rate and payment would qualify a borrower for the same loan amount with a $4,100 lower annual income.  

Regardless of your client’s price point, these variables can add up significantly for buyers considering how much house they can afford now, and into the future.

How realtors can help buyers benefit from low interest rates

From first-time buyers to more seasoned homeowners, it can be overwhelming for anyone to navigate the financial implications of a new home. Help your clients not only find homes they love, but also make prudent decisions that enable them to capitalize on the best of today’s market conditions.

Following are a few interest-related tips that can help empower your homebuyer clients:

• Help your buyers investigate the impact of interest rates on their mortgage obligations with a free mortgage payment calculator. They may discover, for example, that they can afford a larger mortgage than they could a year ago, based on today’s rates.
   
• Offer market insight as they consider whether they should buy now, or later. Many analysts predict mortgage rates may start creeping upward, but will remain very low for the foreseeable future, due to a slow job recovery. On the other hand, however, these are already historic lows we’re seeing, making now a potentially optimal time for many buyers.
  
  It’s also important for your clients to consider more than just the interest rate when answering this question. For example, if property values in your market are on a decline, then it may be worth their while to wait a few weeks or months until a better deal comes along.
   
• Make sure buyers know the difference between adjustable rate and fixed-rate mortgages. With a fixed rate, they’ll enjoy today’s low rate for the duration of the mortgage period. With an adjustable-rate mortgage (ARM), the rate will start at a lower interest rate initially, but will change after a specific amount of time, based on their loan structure. If they are considering an ARM, advise them to look for a lender that offers a cap to prevent a drastic payment increase.
   
• Encourage buyers to look for lenders who will offer rate lock-ins, in case the rates do start to rise again. At Alliant, for example, we offer rate lock-ins for 120 days (new construction/end loans), 90 days (refinance), or 45 days (purchase).
   

Great realtors are passionate about helping people find their dream home. By helping clients make the most of today’s low interest rates, you can also help them turn that dream house into a home-sweet-home reality.