What even is an interest rate?

Simply put: interest rates are the cost of borrowing money.

Let's get into it a bit!

As much as we'd like, borrowing money is not free.

When you take out a mortgage, a lender is lending you a certain amount of money to purchase your desired property. Well, the interest rate is essentially the cost of borrowing that money.

Who is in charge of setting the rate?

As much as it may seem there is a person sitting around setting the rate, there are many more influences and factors: the economy's current inflation, growth, investor demand, the risk, and then there is YOU.

Your individual rate may look different than your neighbor's, with factors such as your credit profile, down payment amount, loan type, the property, and more. Every borrower is unique.

So why do mortgage rates go up and down?

Mortgage rates can change from day to day, and sometimes even in the same day, based on everything happening around us.

When inflation rises, rates can increase because lenders and investors want to account for the higher cost of money. When inflation starts to cool down, rates can then begin to come down. The strength of the economy, whether it is growing or slowing, also has an impact on these numbers.

There is quite a bit happening behind the scenes that affects the cost of borrowing money, ultimately affecting the rate you see when looking into mortgages.

What does an interest rate mean for YOU?

To the point, the interest rate on your mortgage affects how much you will pay each month to borrow the money needed for your property.

The higher the rate, the more you pay over time. A lower interest rate means just that, lower interest paid over the life of your loan. Even the slightest change in the rate can make an overall impact on the cost of your loan. That is why many keep such a close eye on the interest rates!

The Big Picture:

Interest rates may seem complicated, but understanding the basics can help make them less intimidating. There is a lot happening behind the scenes daily that can influence your rate, but a better understanding of how it works is a great place to start!

At Whitehead Realty Group, we believe real estate should feel understandable, not unattainable. We are here to ease that overwhelming feeling that can happen, one step at a time, together!

And remember: your rate isn't forever.

The rate you have today doesn’t necessarily have to be the rate you have forever. If rates become more favorable in the future, you may have the option to refinance your mortgage and potentially lower your rate or monthly payment.

It’s not the right move for everyone, but it’s good to know that you have options as your financial situation and the market change. 🏡

Have a real estate question you've always wondered more about? Reach out to us! We'd love to cover what you want to know!