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Understanding Interest Rates Made Easy

Interest Rates Made Easy

Interest rates can feel like a hidden expense in real estate.

When you purchase a home, you may need to factor in the interest rate if you intend to borrow. This is the amount the lender charges the borrower, and is a percentage of the principal amount; therefore, you are paying above and beyond the cost of your home to buy it. You can think of the interest rate as your way of paying a service fee over time. To further break it down, the interest rate is a percentage of the amount you borrow and pay back for the duration of your loan.

The interest rate on a loan is typically noted on an annual basis, known as the annual percentage rate (APR). Currently we are seeing home mortgage rates around 7% which is close to the 30 year average rate we have seen over time.

How are the interest rates determined?

Economics. Supply and demand for loans and credit determine the interest rates. Central banks raise or lower short-term interest rates to ensure stability and liquidity in the overall economy. Therefore, long-term interest rates are affected by the demand for 10 to 30 years. This all causes local retail banks to control the rates based on their market through business needs and the demands of individual customers.

Interest rates are an essential factor when buying a home, and they have an impact on your buying power if you are borrowing. Low-interest rates can inspire more buyers in the market, causing more competition. When interest rates are raised, lender competition increases leading many to not purchase when interest rates are high.

Get a baseline

If you are a seller the current interest rate can help you predict the market activity when you are establishing your home pricing with your real estate agent in order to know what to expect. If you are a buyer, you can input addresses in our home buying tool linked below for prospective properties to determine what to expect to offer to be competitive.

When you need real estate help for buying or selling properties or just have a question, give us a call at 307-635-0303 or stop by our office at 4000 Central Ave., Cheyenne, Wyoming we’ll be happy to help. Be sure to subscribe to our YouTube channel for real estate education, active listings and community happenings.

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