How Interest Rates Affect Your Purchase Price

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How Interest Rates Affect Your Purchase Price – When considering buying a home, it’s important that buyers understand how interest rates affect the purchase price. Interest rates play a large role in ultimately determining how much a buyer will pay for a home; it’s not just the sticker price. Read on for more information on how interest rates affect the price of a home from, Investopedia, and Home Guides.


Fixed Rates and Bond Interest

Most fixed mortgage rates are heavily based on the same yields that are tied to 10-Year U.S. Treasury Bonds. Homebuyers can determine current interest rate changes for 30 year fixed mortgage rates by examining yields for 10-Year bonds in the market.

The important thing to remember is that if bond yields increase, so do mortgage rates and vice versa.


The Fed

The U.S. Federal Reserve sets a rate at which it lends money to banks and other financial institutions, which in turn affects the rate at financial institutions lend to individuals seeking to buy. In 2014, the Fed announced it would be raising interest rates by the end of the 2015-year, which is something home-seekers may want to consider if planning when to buy.


ARMs (Adjustable Mortgage Rates)

Adjustable mortgage rates are determined by the Federal Reserve rate. These rates change often, every 6 moths to a year, depending on the terms of the mortgage. Though there are different mortgage indexes assigned to different adjustable rate mortgages, they tend to move up and down similarly as the economy fluctuates.


Economic Climate

When the economy is doing poorly, interest rates start to drop, as do mortgage rates. In a questionable economy, investors often place their funds in the bond market, creating higher demand and lower yield. Anytime such large quantities of cash are taken out of the stock market, interest rates tend lower.



There is no #1 predictor to calculate when interest rates will drop. However, keeping a close eye on current economic affairs is a good indicator of where investors will place their money.  When interest rates lower, homeowners are more likely to take out loans because the cost is low and seemingly more affordable. This can even contribute to a rise in the sale of homes, which consequently can lead to the increase the cost of homes in the short or long term. There is no silver bullet to the best answer or the best timing to invest in a new home. So when considering buying, homeowners may want to worry more getting a good solid rate, and worry less about getting the cheapest deal possible.


The interest rate you get is going to depend on the market and the price and type of home you buy, but it’s important to understand how interest rates affect the final cost of the home before you buy. For more information on interest rates and home buying, check out these articles from, Investopedia, and Home Guides.




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