Interest rates have ped further over the last few weeks to all-time lows to the surprise of many. As a result, the home purchasing power for
many prospective home buyers has increased substantially in a couple of months since the beginning of 2020. This is one positive from the market
chaos created from the coronavirus.
At the beginning of 2020, 30 year fixed mortgage interest rates for a consumer with excellent credit scores was 3.75%. The monthly principal and
interest payment for a consumer taking out a $350,000 loan at the given terms would be $1,620.
Fast forward to today and the same 30 year fixed mortgage rate has ped to 2.875%. How did this in interest rate help prospective
homebuyers? By increasing their purchasing power – a lot!
Let’s take a further look in the details.
Increase in Purchasing Power
Tom and Jen both have excellent Classic FICO® Scores of 770.
| Date | Interest Rate | Mortgage Balance | Monthly Payment (P&I only) |
|---|---|---|---|
| Jan 5, 2020 | 3.75% | $350,000 | $1,620 |
| Mar 5, 2020 | 2.875% | $385,350 | $1,620 |
Tom bought a house on January 5, 2020 and took out a $350,000 mortgage at 3.75% 30-year fixed rate. His payment is $1,621.
Jen took out a 30 year fixed-rate mortgage this past week with the same principal and interest payment of $1,620 at 2.875%. Her loan amount is
$385,350.
Since Tom’s and Jen’s payments are the same, this means Jen’s purchasing power increased by 10% in just over two months by having interest rates fall
from 3.75% to 2.875% (385,350 / $350,000 = 10.1%).
Who Benefits?
There is a lot of anxiety today from the coronavirus. However, there may also be some great opportunities. The beneficiaries could be those looking to
purchase a house today – and have excellent FICO® Classic credit scores.
Whether you have not realized it, there are opportunities to get a better deal than just two months ago.
Source: mycreditplan.org
by Al Bingham