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What Low Mortgage Interest Rates Mean for New Home Buyers

April 20th, 2021
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If you’re in the market for a new home—or your first home—you’re probably paying close attention to mortgage interest rates, and you may have found yourself wondering, “Why are interest rates so low?”

In fact, mortgage rates just dropped again this week, signaling to home buyers that it’s a good time to lock in low interest rates and put in an offer on the new home of your dreams! If you’ve been watching the market, you’ll already know that interest rates tend to fluctuate, so buying when rates are low means an opportunity to pay less over the lifetime of your loan. But how do interest rates work? Are low interest rates good in the long run? These are the kinds of questions we’re here to help you answer.

What do low interest rates actually mean?

In its simplest form, a low interest rate means that you’ll pay less for a big-ticket item (such as a new home) as you pay off the loan over time. Why? A mortgage is a binding legal agreement. The bank or other lending agency agrees to lend you the money at a specified rate of interest over the life of the loan. The median list price for a home in the state of Texas is roughly $350,000, and the typical mortgage is 15 or 30 years. You can see how even a few percentage points one way or the other can result in a significant difference in how much interest you’ll have paid by the time the loan is paid in full.

What are the current mortgage rates?

Right now, mortgage interest rates have hit a historic low. Just this week, on April 16, 2021 the average annual percentage rate (APR) for a 30-year fixed mortgage was 2.86% while the average for a 15-year fixed was only 2.196%. By comparison, on April 1, 2020 the average rate for a 30-year fixed was 3.59% and the average rate for a 15-year mortgage with fixed APR was 3.262%. Interest rates have dropped by as much as a full percentage point or even more from this time last year! (source)

Why are interest rates so low?

What’s influencing these historic low interest rates? As we said above, interest rates tend to fluctuate, and those fluctuations can be influenced by a number of factors. Right now, one major factor keeping interest rates low is a drop in the expected amount of inflation, one of the bellwethers the Federal Reserve uses to set interest rates on things like federal loans. This means that the Federal Reserve is likely to hold interest rates near zero until 2023—a major boon to home buyers looking to lock in cheap mortgages!

But are low interest rates good?

Short answer: Yes! Here’s why: It all comes down to the APR we mention above. The annual percentage rate is the true cost of the mortgage. It’s what you’ll be paying every month. It includes everything that goes into getting the loan: the interest rate, any points or fees charged by the lender, you name it. The lower the interest rate (and therefore the lower the APR) the less you pay over the life of the loan, including principal, interest, and any other fees that are involved.

In essence, this is why anyone looking to buy a new home—or (perhaps especially) their first home—should take advantage of low interest rates. Low rates mean more money in your pocket at the end of each month. That doesn’t just mean a lower mortgage payment every month; it also means more spending power for you, so that you can afford the improvements for your home that you want. And that isn’t all! Low interest rates are actually good for the housing market as a whole. Lower interest rates help to keep the market stable, which means that when you buy at a low interest rate, you’ll know that you’re making a good investment.

How to take advantage of low mortgage interest rates.

Whether you’re in the market for a new home or your first home, this may be the best time to lock in a low mortgage interest rate and secure that dream home you’ve been wanting for your family. With a growing population of young families and first-time home buyers and a thriving economy, the real estate market near Dallas is hot right now. With interest rates at historic lows, there’s never been a better time to buy.

Not sure where to find that home of your dreams? Try our new-home community just north of Dallas, where we weave big city conveniences into the spirit of small-town living. Mantua has all the comforts of home, all the conveniences you could ask for, and all the amenities you ever imagined, all nestled in lush and lovely natural surroundings and a friendly, historic small-town atmosphere.

Home prices in the first phase of the new master-planned community range from the $280s to the $450s. To learn more about homes at Mantua and to discover a life you’ve always dreamed of, contact us today and schedule a tour!