How Interest Rates Affect The Purchase Price Of Your Home

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How Interest Rates Affect The Purchase Price Of Your Home – If you’re considering buying a home, it’s imperative that you understand how interest rates affect the actual purchase price of your home. Interest rates will determine how much you actually end up paying for a home (spoiler alert: the sticker price is not the final cost of a home), so it’s important to research the real estate market, different loan options, and interest rates. Here are some options to get you started from Realtor, Investopedia, and Home Guides.


Fixed Rates and Bond Interest

Most fixed mortgage rates are heavily based on the same yields that are tied to 10-Year U.S. Treasury Bonds. Homebuyers can determine current interest rate changes for 30 year fixed mortgage rates by examining yields for 10-Year bonds in the market.

The important thing to remember is that if bond yields increase, so do mortgage rates and vice versa.


The Fed

The U.S. Federal Reserve sets a rate at which it lends money to banks and other financial institutions, which in turn affects the rate at financial institutions lend to individuals seeking to buy. In 2014, the Fed announced it would be raising interest rates by the end of the 2015-year, which is something home-seekers may want to consider if planning when to buy.


ARMs (Adjustable Mortgage Rates)

Adjustable mortgage rates are determined by the Federal Reserve rate. These rates change often, every 6 moths to a year, depending on the terms of the mortgage. Though there are different mortgage indexes assigned to different adjustable rate mortgages, they tend to move up and down similarly as the economy fluctuates.


Economic Climate

When the economy is doing poorly, interest rates start to drop, as do mortgage rates. In a questionable economy, investors often place their funds in the bond market, creating higher demand and lower yield. Anytime such large quantities of cash are taken out of the stock market, interest rates tend lower.



There is no #1 predictor to calculate when interest rates will drop. However, keeping a close eye on current economic affairs is a good indicator of where investors will place their money.  When interest rates lower, homeowners are more likely to take out loans because the cost is low and seemingly more affordable. This can even contribute to a rise in the sale of homes, which consequently can lead to the increase the cost of homes in the short or long term. There is no silver bullet to the best answer or the best timing to invest in a new home. So when considering buying, homeowners may want to worry more getting a good solid rate, and worry less about getting the cheapest deal possible.


The best way to ensure that you are getting a ‘good’ interest rate when purchasing a home is to become familiar with the market trends, talk to your real estate agent, and talk to your financial adviser. Their expertise in real estate and finance can help you determine what kind of rate or loan is best for you. For even more information and tips, don’t forget to check out Realtor, Investopedia, and Home Guides.


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