Interest rates depend on a lot of factors. It’s not like shopping for a vacuum cleaner. Basically the bigger the risk for the bank, the higher your interest rate. In other words: got a high credit score? That means big risk for the bank and a high rate for you.
I’ve been hearing for a while now that buyers are waiting for the bottom of the real estate market before they buy. IMO – not smart. I watch the market every day. I couldn’t tell you when we’ll hit bottom – we might have already, which is my opinion as of today. But I’ve thought that before.
So you wait until you think it’s the bottom of the market before you buy. That only takes into consideration the price of the house. What about interest rates?
I don’t know if you’re listening to the rumbling out there but the next thing to hit this country is going to be inflation. What does that mean to home buyers? Higher interest rates = More expensive houses.
Think of this way: You’re not buying a house; you’re buying a loan.
For the sake of this conversations, I’m going to use a median. Uh-oh.
The current median home price in San Mateo County is $580,000. Make it easy on me – forget the down payment for these examples.
| Year | Average Interest Rate | Price of House | Monthly Payment |
| 2009 | 5.06 | 580,000 | 3134.87 |
| 2008 | 6.03 | 580,000 | 3488.59 |
| 2007 | 6.34 | 580,000 | 3605.18 |
| 2006 | 6.41 | 580,000 | 3631.73 |
| 2005 | 5.87 | 580,000 | 3429.07 |
| 2004 | 5.84 | 580,000 | 3417.96 |
| 2003 | 5.83 | 580,000 | 3414.26 |
| 2002 | 6.54 | 580,000 | 3681.27 |
| 2001 | 6.97 | 580,000 | 3847.08 |
| 2000 | 8.05 | 580,000 | 4276.07 |
See what I mean? The difference between 5.83 and 5.84% is a cup of Starbucks. But the difference between 8.05 of 2000 and the 6.97 rate of 2001 might be a car payment.
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