Buying a Home When Interest Rates Are Low

woman taking time to think

According to Bankrate, in April 2021 U.S. interest rates for a 30-year fixed-rate mortgage are an average of 3.070% as of this writing. It’s a pretty low rate to pay these days during the global pandemic. 

Buying a home is an exciting event and is likely one of the biggest financial decisions you’ll make. If you’re planning to purchase a first or second home this year, the interest rate favors those who have a strong down payment. Remember, though, that the current seller’s market might throw a wrench in your plans—you could end up paying more than you expected or search for homes longer.

Before you continue to peruse listings on Zillow and line up real estate agent interviews, take a minute to pause. Yes, pause!

Take Time to Pause

Ask yourself the following questions:

  • What or who is influencing my decision to buy right now? 
  • Am I buying because of fear of missing out (FOMO)?
  • How much house can I afford
  • How committed am I to homeownership?

These questions will help you consider the financial and emotional aspects of homeownership. Think carefully about the consequences of buying. You can’t return a house because you don’t like it (if you sell because of buyer’s remorse, you’re not guaranteed to make money on the sale. If you make a profit, you’ll pay short-term capital gains tax, which can be significant depending on your tax situation!) Chances are very high that you will lose out if you rush into buying and do not have enough money to afford a home, taxes, and upkeep.

Get to Know Interest Rates

The Federal Reserve sets a benchmark interest rate that fluctuates based on the economy. Mortgage lenders (financial institutions) consider this rate and then select rates for borrowers based on their credit, loan type, and down payment. In a nutshell, you’re paying to borrow money when you take out a mortgage loan. 

While you can’t choose your interest rate, you can work towards making your financial situation favorable to lenders. This is why it pays to have a budget and do your research before you get in too deep.

Why Low-Interest Rates are Favorable 

Low rates can make the cost of buying a primary residence or secondary home cheaper because you’ll pay less to live there over the life of the loan. A fixed low-interest rate mortgage becomes a hedge against inflation when the Fed raises interest rates. This assumes that your mortgage payments are timely and paid in full. 

It also makes it more enticing to refinance a home purchase if you still have a significant amount on your mortgage. Refinancing can make sense if your new interest rate drops by a percentage point or more. To illustrate the effects of a refinance (including refinance fees), try out this calculator.

How to Qualify for the Best Rates 

The best way to qualify for competitive rates is to have good or excellent credit. You should aim to have a score of 620-850 and check your credit report for errors before you contact a lender.

The Ideal Scenario (and Some Alternatives)

  • Ideal: The best time to buy a home is when house prices and interest rates are low. In today’s seller’s market, the cost of homes can skyrocket when multiple buyers are competing for the same limited inventory. 
  • Alternative: Paying a large down payment (20% or higher) and then locking in a competitive *15-year fixed-rate mortgage. This type of buyer could then have enough money to invest in retirement accounts or pay off the house sooner, thus lowering the total amount of interest paid over the loan’s lifespan. 
  • Alternative: Paying in cash means being mortgage-free. Sellers love all-cash offers and it saves this type of buyer a significant chunk of money. The one caveat of paying cash is that the buyer might not have as much money available for investing or other financial goals.

*Even taking out a 30-year mortgage would be wise with a low rate, as it would lower this buyer’s risk of default.

So, given that information, should you wait to buy, or not? Here’s the best way to decide: It’s not going to be a straightforward answer; you have to look at your risk tolerance, make a prediction, and then stick to what you believe (not what others believe)!


  • High-interest rates could be better for your wallet because there are fewer people seeking mortgages when rates increase. Just because current rates are low doesn’t mean that you are getting a better deal. You might be looking at overly-priced homes that are out of your budget. You’ll want to calculate the total amount you’ll pay on your mortgage including any applicable taxes, homeowners association (HOA) fees, or homeowners insurance.
  • Ignore what everyone else is doing or says you should do! Consider what your friend, family member, or financial advisor is telling you and why they are giving you that specific advice. Not everyone should buy a home, and you’ll need to make that decision on your own. Low rates are enticing but consider the state of the current market before you commit to a purchase. 

The Bottom Line

Remember that interest rates aren’t the only piece of information you should consider when shopping for your home. Multiple factors can change the rates you’ll receive, and while you won’t have control over that rate, you do have control over your finances. Getting into a home during a seller’s market isn’t easy, but if you have a firm conviction and financial standing, you can find a property you’ll love.

Disclaimer: This post was not written or reviewed by a professional financial advisor, and the suggestions should not solely be used to make financial decisions.

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