Mortgage Rate Dip Gives Homebuyers More Purchasing Power

Rates Are Up Almost 1% in 2022

Mortgage rates had risen nearly a full percentage point upon inflation fears and a nearing “end” of the pandemic. The uncertainty caused by Russia invading Ukraine and its fallout has spooked markets, and mortgage interest rates have benefited.

Applications for new mortgages, particularly refinance applications, typically decrease when mortgage rates rise. 2022 is no exception.

On Tuesday, mortgage rates hit 3.9%, down from 4.18% last Friday. While significant, 3.9% is far from the low rates available during the heart of the pandemic. The drop is not likely to trigger many refinance applications. However, a quarter percent drop in interest rates can have a legitimate effect on home purchases.

A 0.25% decrease in mortgage rates, when calculating the mortgage payment on a $400,000 loan, results in $58 in monthly savings. That’s more than $20,000 over the life of the loan.

While $58 per month may not seem like much, the bigger impact caused by interest rates for homebuyers is the amount one is able to pay for a house given a fixed monthly payment. That is to say, the lower rates are the higher a price one is able to pay.

Compare Rates to Maximize Purchasing Power

Using What’s My Payment’s home affordability calculator and numbers similar to ones used above, a 0.25% difference in interest rates equates to approximately $12,000 in additional purchasing power without changing the monthly payment. $12,000 could be the difference in getting an offer accepted or rejected.

Comparing mortgage rates is always important, but perhaps not more so than when markets are volatile. Some mortgage lenders adapt faster or are better prepared for rate fluctuations. Check with multiple lenders prior to committing to a mortgage loan. The savings in real dollars can be significant and may be the difference between landing your dream home or going back to the search boxes of your favorite real estate app.