What the Fed's Low Interest Rates Mean for Homebuyers

mortgage ratesThe Federal Reserve announced today that they will keep interest rates low until at least late 2014 in an effort to help jump-start the sluggish economy by making it less expensive to borrow money across all segments of the economy.

What this means for homebuyers and current homeowners is that mortgage rates for a purchase loan or to refinance will remain remarkably low in the near-term, keeping affordability high. The 30-year fixed mortgage rate fell below 4 percent on Zillow Mortgage Marketplace in mid-October 2011 and has dropped as low as 3.67 percent in recent weeks.

Here's a quick comparison of mortgage rates and affordability using today's rates compared to 2008:

Today's rates: For a homebuyer shopping for a home today assuming 20 percent down and today's interest rate of 3.7 percent, they would be able to afford a $215,000 home with a monthly mortgage payment of about $1,000 per month (including principal and interest).

2008 rates: If a homebuyer shopped for a home in 2008 when mortgage rates averaged roughly 6 percent, the same homebuyer would only be able to afford a $165,000 home for $1,000 per month (including principal and interest)

Difference: $50,000

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