How Interest Rates Affect Home Sales
June 21, 2020 | Ramseier Realty Group
If you’ve been considering buying a new home, you might already know that interest rates dropped to an all-time low in April. But, did you know that interest rates can impact the housing market? Here’s more about what an interest rate is and how it affects home sales.
What’s an interest rate?
In terms of home loans, an interest rate is a percentage of interest that the borrower has to repay over time. It’s dependent upon two factors:
- The amount of time you plan to take to repay the loan and
- The ratio of your down payment to your amount of money borrowed.
This is why lenders typically want to know how much money you plan to put down upfront and how many years you intend to take to repay the loan.
Essentially, an interest rate is the percentage of money you are paying per cycle for the convenience of getting to borrow a large sum of money from a lender.
How interest rates impact home sales
Interest rates can be a motivator or deterrent for potential buyers. Here’s more about what happens when the interest rates are low versus when the interest rates are high.
What happens when interest rates are low?
When interest rates are down, it typically means you can borrow more money at a lower cost to you personally. This is normally the nudge prospective buyers need to start shopping.
Low interest rates are helpful for both home buyers and sellers. With buyers able to afford higher loans (because of their lower interest rates), they are able to borrow more money and pay more for homes.
This can help sellers make a little more on their home sale than they were anticipating. But, if you’re thinking of selling your home, make sure you don’t over-inflate the asking price.
Before the sale can occur, your home will still have to have an appraisal. These normally weed out the homes that are trying their best to capitalize on low interest rates and have been over-priced.
If your appraisal comes in well below your offer, it’s possible the lender may decide to not lend the full amount of money for that home. This can end up being a nightmare for both the borrowers and the home sellers.
What happens when interest rates are high?
When the interest rates are high, people are not as highly motivated to move. Perhaps, they want to keep the lower interest rate they already have on their current home. Or maybe, they can’t get enough money from the sale of their current home to pay for the new home they want. Whatever the reason, high-interest rates tend to make the real estate market slow down.
Thinking of finding a new home?
Right now interest rates are really low! If you’re thinking of finding a new home, Ramseier Realty can help. Give us a call today at 816.262.8077 to speak with a member of our team or contact us through our website to schedule an appointment. We are ready to help you find the home of your dreams!