The recent Fed meeting brought about a surprising change in the direction of interest rates. In other meetings, the decision was to maintain the same rates, or even to increase rates just a bit. But in the latest Fed meeting, they decided to drop interest rates. So, what does that mean for the real estate industry?
The Fed Rates and Mortgage Rates Aren’t Correlated
Keep in mind that the Fed interest rate changes don’t have a direct correlation on mortgage interest rates. For example, when the Fed drops rates by .25% (which they did in the last meeting), it doesn’t mean that mortgage rates automatically drop by .25% as well.
That being said, the Fed rates announcement is big economic news, which means that the decision after each meeting will affect the economy. In turn, these economic changes have an impact on mortgage rate trends. The market is beginning to slow down just a bit, which is having a positive impact on mortgage options. We’re seeing a reversal in interest rates, and as these rates go down, real estate buying power goes up.
How Lower Interest Rates Affect Mortgage Approval and Payments
When you talk to a lender for pre-approval to buy a home, the numbers will be calculated to figure out your maximum purchase price and mortgage payment. This payment threshold stays the same, which means that a lower interest rate gives you the option to buy a bigger home.
For example, if interest rates drop by 1%, then that decrease gives you 10% higher buying power in terms of the purchase price of your home. Your monthly payment will still be about the same, but you will be paying less interest – which frees up more cash that goes to the principle of the home. As a result, you can afford to buy at a higher price-point. Or, you have the option to choose a home in the lower purchase price, helping to decrease your monthly payments.
Good News for the Real Estate Market
When mortgage rates go down, it’s good news for the real estate market. These lower interest rates make it possible for more people to buy homes. At the same time, the stronger buying power can have a positive impact to help sellers maximize the selling price. These lower interest rates are great to stimulate the real estate industry and option up options if you are thinking about buying or selling a home.
If you are looking for real estate services in Atlanta, then DUFFY Realty is here to assist. We’d love to show you the benefits that come from choosing the best real estate team in the area. Contact us any time to learn more about the top-notch, low-cost real estate services that are available for your family: (678) 318-1700