I hope this message finds you doing magnificently. As the warmer and longer days return once again, we find ourselves in what is traditionally the busiest time of year in real estate. This year, we have the added factor of interest rates hovering around 6 percent, which is the lowest rate that we have seen in three years.
I know…I know…the interest rate is a constant talking point from every realtor you interact with. There is always so much talk, but rarely do we see real world examples. Please allow me to do what few dare to do…math.
I know…I’m excited too.
A practical way to understand the impact of changing mortgage rates is to look at an example based on Kingston’s approximate median home price of $660,000. Assuming a buyer puts down 20 percent ($132,000), the mortgage loan amount would be $528,000 on a 30-year fixed loan.
At an interest rate of 8 percent, the monthly principal and interest payment would be approximately $3,874 per month. If the interest rate drops to 6 percent, that same loan would carry a monthly payment of about $3,167 per month.
Here’s an understatement: the difference is significant.
A buyer purchasing the same home at 6 percent instead of 8 percent would save roughly $707 every month, or about $8,484 per year in mortgage payments. Over the life of the 30-year loan, the difference becomes even more dramatic. The buyer at 8 percent would pay approximately $866,000 in total interest, while the buyer at 6 percent would pay about $612,000 in interest, resulting in a savings of roughly $254,000 over the life of the loan.
When typical Massachusetts homeownership costs such as property taxes and insurance are included, the comparison remains similarly striking. A Kingston home valued at $660,000 may carry property taxes of roughly $8,000 per year, or about $667 per month, along with an estimated $150 per month for homeowners insurance.
Under those assumptions, the total monthly housing payment at an 8 percent interest rate would be roughly $4,691 per month, compared with about $3,984 per month at a 6 percent rate. Once again, the savings remains close to $700 per month for the same home simply due to the difference in interest rates.
This type of change helps illustrate why even a modest drop in mortgage rates can bring many buyers back into the housing market. For households balancing monthly budgets, a difference of several hundred dollars per month can dramatically affect purchasing power and make homeownership more attainable.
To some, this may seem elementary, but it is worth illustrating for those who considered making a move when rates jumped to almost 8 percent in late 2022 and 2023. A doubling interest rate on top of already high prices was a major reason the housing market on the South Shore slowed dramatically. Those who were on the fence about selling their home and buying the next one at that time have built more equity since the rates jumped.
With Kingston property values staying consistent, the seller who has yearned to move to the next phase of life now has the opportunity to take advantage of the mortgage balance they have paid down and finally make the move.
My golden rule is simple: never try to time the market. If you can comfortably afford the payment today, you will be happy you bought at the rate you bought if rates go up. If rates dip again, that is the time to refinance.
A note to the aspiring first time homebuyer: coming up with a down payment is hard when you do not have equity in a property to work with at these prices. I see the struggle every day with people trying to make it happen. Do not give up. There are programs that allow you to put down as little as 3 percent, and in some cases even zero.
Do not give up. You are already paying a mortgage for someone else. It might as well be your own.
If you are already a homeowner and have dreamed of moving on to the next destination, use your increased equity and lower interest rates to make it happen. If you want an honest, rational, and professional opinion on what your next move should be, I am here for you.
Happy Spring!
