What you need to know about interest rate trends before you buy a home

Discover how interest rates impact your mortgage payments and how much home you can afford.

What You Need To Know About Mortgage Interest Rates

It’s no secret, interest rates were low in the wake of the Great Recession that started in 2009. For those who could still afford to buy homes at the time, those interest rates made it cheaper than ever to borrow money to purchase a property. Since then, interest rates have risen as the economy recovers.

Current interest rates for 30-year fixed-rate mortgages are hovering around 4.5% — a full percentage point more than the all-time low of 3.31% in 2012. With more rate hikes predicted this year, that means interest rates on both new fixed and adjustable mortgages could also climb back to numbers that we haven’t seen since before the 2009 recession. Nonetheless, today’s mortgage interest rates are still historically low, making it a good time to borrow money and buy a house.

Historical interest rates for 30-year fixed-rate mortgages per Wells Fargo Home Mortgage. Chart showing interest rates changing over time between 1980 and 2018, specifically pointing out that in 1981 rates reached an all-time high of 18.63%; going down over time, with recession hitting between 2008-2009; and in 2012 rates reaching an all-time low of 3.31%

No matter the economic climate, here’s what you need to know about interest rate trends in order to make the best decision about buying a house.

What interest rates mean for your home loan payments

Interest rates matter because they impact your mortgage payments. The higher the rate, the more you’ll pay over time — and each month. You can track rates daily to see how frequently they change.

Low rates can make you feel like you need to rush out to buy a house before rates rise. It’s true that higher interest rates impact how much home you can afford: The higher your interest rate, the more your monthly payment will be.

What happens if rates continue to go up?

If rates continue to rise, you’ll pay more on the same mortgage than you would if you bought with a lower rate. But if you can adjust your homebuying budget and look for a less-expensive home, you can reduce the impact of the interest rate and offset the cost of a higher percentage.

Purchasing a lower-cost home can reduce your monthly mortgage payment — even if interest rates rise. This puts more control in your hands, rather than reacting to interest rate trends or predictions about what the economy will do next. You can also use a mortgage calculator to determine how different rates will affect your particular payment.

Let your personal financial situation guide your decision-making

Ultimately, no one can predict what interest rates will do this year or in the future. We can expect that they’ll change, but we don’t know exactly how.

Buying just to take advantage of an interest rate doesn’t make sense when it comes to buying a home. It’s far more important to save for a down payment and to ensure your cash flow can handle a mortgage payment, homeowners insurance and taxes, and all the other costs that come with owning and maintaining a home.

On the other hand, if buying a home is a priority for you, buying now might make sense. You can still take advantage of lower rates as long as you feel prepared to handle the monthly mortgage payments and the responsibilities that come with homeownership.

Check current interest rates.

Written By: Kali Roberge