Mortgage interest rates - still really low...

A buyer client asked me the other day if I thought the 4.0% mortgage interest rate she was quoted was a good rate. YES. Not only is that a good rate for today, that is an amazing rate given where interest rates have been in the past. For those of you who do not remember when rates were higher than 5.0%, let me refresh your memory.

When I bought my first home in 1998, my interest rate was 7.125%. And for that time, THAT was an amazing interest rate. I remember my mom expressing how jealous she was because the interest rate my parents had on their home was substantially higher.

I recently stumbled across this old newspaper ad from 1985 touting 11.5% as an amazing interest rate! That's correct -- today's interest rates are about 1/3 of that from 1985. And let's not forget that for the mid-1980's 11.5% really was a good rate since they peaked in the high teens earlier in the decade.

What do low interest rates mean for housing affordability? Let's break it down based on monthly payment. Here is monthly loan principal and interest for a 30-year amortization based on a few different rates:

$300,000 loan at 4.0% - $1,432.25
$300,000 loan at 4.5% - $1,520.06
$300,000 loan at 5.0% - $1,610.46
$300,000 loan at 6.0% - $1,798.65
$300,000 loan at 7.0% - $1,995.91
$300,000 loan at 8.0% - $2,201.29

Interest rates matter...and right now they are awesome.

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