One of the biggest concerns for many homebuyers is paying high interest on their mortgage, especially in a world where compounding interest exists. Whether it’s a fixed or adjustable-rate mortgage, many homebuyers want to avoid paying above the market rate. In the case of adjustable-rate loans, homebuyers tend to be wary of changing interest rates, and it’s not hard to see why. Whatever the case may be, interest doesn’t just increase the amount owed on monthly payments; they also make it harder to pay down an existing balance.
When thinking about the type of mortgage to apply for, many homebuyers tend to look for a loan that will offer the lowest interest rate possible, as well as a low down payment. While low-interest rates may seem to only benefit the borrower, they actually benefit lenders as well. How so? Low-interest rates do two things: first, they minimize financial risks for the borrower and encourage homebuying. Second, low-interest rates increase economic growth for a lender.
Low Interest Encourages Homebuying
It goes without saying buying a home is not cheap. Depending on the property type, the condition of the property, the location of the property, and many other factors like foreclosures, home prices can range from the thousands well into the million-dollar range. It only makes sense that homebuyers will want to invest in a home that fits their needs and works with their budget.
One of the major advantages of mortgages with low-interest rates is that it makes monthly payments more manageable for the homebuyer and makes purchasing a new home a less risky investment. As such, low-interest rates help entice a potential buyer into purchasing homes, and in the case of existing homeowners, it encourages them to refinance their homes. The other major perk of low-interest rates is that they help reduce financial stress for the homeowner.
Low Interest Increases Economic Growth for a Lender
On the side of lenders, there are benefits to be had from low-interest rates as well. One of those is that low-interest rates encourage homebuyers to borrow money, which helps stimulate economic growth. For first-time homebuyers, they’ll want to take as few financial risks as possible by avoiding loans that will cause them to pay more interest over a period of time, which risks the likelihood of defaulting on monthly payments. Not only will a low-interest rate help a first-time homebuyer feel a little more secure in making larger purchases.
Another way lenders benefit from low-interest rates is that it encourages current homeowners to refinance their mortgages. There are plenty of reasons homeowners choose to refinance, some of which include life events, changes in income, and even changes in financial goals. One of the more common reasons homeowners choose to refinance is wanting to pay off a mortgage sooner by lowering their monthly payments. In some cases, this will entail homeowners wanting to change their current mortgage with a different type in order to reduce or eliminate costs like mortgage insurance premiums. In cases where homeowners are making monthly payments on adjustable-rate mortgages, refinancing with a fixed-rate mortgage reduces their interest rate and fixes their monthly payments to a consistent, unchanging amount.
To find out how MCS Mortgage can help you choose a loan with a low-interest rate, contact us by phone at 833-415-LOAN or by email at Hello@MCSMLS.com.