Low interest rates. U.S. keeping rates low to spur home buying.

A fraction of a percent may not sound like a lot, but when you’re financing a home over 30 years — and sometimes longer — that change in interest rates can have a huge impact on how much you pay for the home over time.

That’s why today’s interest rates make buying a home so attractive. Years ago, it wasn’t uncommon for people to pay double-digit interest on their home loans, which pushed their monthly payments higher and made it harder for many people to afford a home. Those high rates also meant buyers would pay a fortune in interest fees over the life of the loan.

GOVERNMENT PUSH

One reason today’s interest rates are so low is that Uncle Sam wants it that way. The United States government believes keeping mortgage rates low will encourage more people to buy homes and help drive economic growth.

With that in mind, the Federal Reserve began purchasing U.S. treasuries to keep mortgage rates at historic lows. It was an unusual step that may sound complicated, but the end result is simple: It’s cheaper for you to borrow money to buy a house today.

No one knows how long the government will keep intervening to keep rates artificially low, though. That’s another reason why now is the perfect time for people to buy a home.

LONG-TERM PERSPECTIVE

Interest rates constantly fluctuate, sometimes changing several times in just one day. But when you look at it over the long term, today’s interest rates are near record-low levels that simply can’t be ignored. Buyers who lock in mortgage rates at today’s levels are getting a major bargain compared to the historically high rates of the past.

Interest can also make a major difference in how much you’ll pay over the life of your loan.
Think of it this way: If you borrow $200,000 on a 30-year loan, you’ll pay nearly $150,000 less in interest payments with a 6-percent loan than with a 9-percent loan. That 3-percent difference may not sound like much, but it sure changes how much you’ll pay to the bank over the whole 30 years.

If you want to see the difference for yourself, search for “loan amortization calculator” on the Internet. You’ll find lots of Web sites that can help you crunch the numbers for your situation, and you’d be amazed at what a difference that interest figure can make.

FIRST-TIME HOMEBUYER TIPS

FIND A GREAT INSPECTOR

Every home someone purchases — even one that’s brand new — ought to be inspected by a qualified, experienced home inspector.

The best inspectors are extremely thorough. They’ll find every little problem with the home, which is vital to know up front. Buyers need to be aware of these things before making their final decision. A good inspection will let you know exactly what to expect down the road. It’s money well spent.

REAL ESTATE GLOSSARY

AMORTIZATION SCHEDULE — A table that shows how your loan balance changes over the life of your mortgage. If you want to know what you’ll owe on the home after 10 years of making payments, the amortization schedule will show you.

ESCROW — An account that can be used to pay property taxes and insurance premiums.

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