With a shortage of properties for sale, home prices have increased considerably in many markets across the country. On Long Island, the median sale price in Nassau County increased by 11.6% in August 2020, compared to the previous year. In Suffolk County, the median sale price increased by 12%. 

This leaves many people wondering, Will I be able to afford a home as prices rise?

Monthly Payments

If you are financing a home, the cost you pay each month is more than the property’s sale price. Most monthly mortgage payments factor in four components: principal, interest, taxes, and insurance (PITI). 

• Principal - the portion of each mortgage payment that goes to the amount of money you borrowed. 

• Interest - the amount you pay for borrowing money.

• Taxes - property taxes. 

• Insurance - homeowners insurance and mortgage insurance, when required. 

Current Interest Rates

Even though we are in a seller’s market and have seen an increase in property values, many buyers are paying less on their monthly payments than those who bought last year. 

Mortgage interest rates are at historic lows. Freddie Mac recently announced the average interest rate for a 30-year fixed-rate mortgage was 2.87%. At this time last year, interest rates averaged around 3.7%. This seemingly small decrease makes a big difference over time!

In the example above, if you bought a $250,000 home last year with an interest rate of 3.73, your monthly payment for principal and interest would amount to $1,155. Factoring in the increase in home values, the same house today would sell for around  $263,750. However, with an interest rate of 2.87%, your monthly payment would drop to $1,094 per month. This savings adds up to $732 per year and $21,960 over the life of the loan. 

If you plan on buying in the near future, historic low-interest rates will help you stay within your budget!

Contact us to get started on your home search today.