How you can take advantage of low mortgage rates

April 14, 2021

If you invest wisely in the housing market now, using low interest rates as your motivation, you might feel the gains for years to come.

 

Since 2011, mortgage rates have consistently been at levels below what they were in the 30 years prior to the recession. While we’re no longer experiencing rock-bottom low mortgage interest rates, the environment is still favorable for borrowers.

If you haven’t already, now might be time to take advantage of the low mortgage interest rates. Before you dive into the process, it pays to know what you have and what you’re up against.

 

Assess your finances

Review your financial situation and whether you can afford additional debt and the associated monthly payments that come with taking out a loan or mortgage. Interest rates may be favorable, but you can still end up struggling to make payments if you overextend yourself.

 

Follow the financial news

Mortgage rates fluctuate based on a variety of factors, including the direction of the economy, actions of the Federal Reserve and federal involvement in the housing finance system. By monitoring these developments, you’ll have an better understanding of how long current rates are likely to last, where they’re headed and how to use that information to inform your lending decisions. 

If you’ve decided you have the finances and the knowledge to take advantage of low rates, there are several ways you can leverage your borrowing power.

 

Renovate or upgrade your current home

You can take advantage of great interest rates without taking out a mortgage on a new home by exploring home equity loans. If you’ve been considering a kitchen remodel or adding another bedroom, consider looking for a home equity loan with a low fixed rate to complete those longed-for improvements.

 

Move to a more expensive home

If you’ve ever wanted to upgrade to a larger home or a more expensive neighborhood, low interest rates can make it easier. With a fixed rate loan, you can lock in relatively low monthly payments while rates are favorable. You can use this mortgage calculator to determine what your approximate monthly payment would be, then decide if it’s time to begin the hunt for your dream home.

 

Buy a housing investment property

Vacation and rental properties can supplement your income as a housing investment. If you have the time and energy to become a landlord, it’s a great way to capitalize on low interest rates. Do your research, speak with an attorney and work with a real estate agent who’s worked with investment properties to devise a clear goal for your potential new property. 

Finding the right property at the right price is crucial when investing in housing. While monthly mortgage payments on fixed-rate loans stay constant, rental rates typically go up over time. If you can afford the initial investment and the upkeep of the property, a second property can be a long-term source of passive income.

 

Explore different neighborhoods

If you don’t own a home and don’t want to commit to something permanent, consider buying a low-priced property in an area that you think will appreciate in value, with an eye toward selling in a few years. Since you’ll be paying a relatively low-interest mortgage and you’ll be buying in that area’s bottom of the market, the cost to you is relatively small — with a high upside for gain. Here are three types of opportunities: 

  • Newly developed new-construction neighborhoods or complexes that didn’t fill up as quickly as the builder wanted. These often feature state-of-the-art homes that builders and real estate agents are under pressure to sell, to clear inventory.
  • Run-down neighborhoods adjacent to popular, more expensive neighborhoods. The popularity and price gain associated with one neighborhood often spills into nearby areas. You can capitalize on this effect by buying before the wave of popularity hits.
  • Neighborhoods with a high percentage of foreclosures are rife with bargain properties, even if you don’t want to buy a foreclosure. While a foreclosure-heavy neighborhood might seem lonely at the moment, it likely won’t be that way forever.
     

Speculating has risks, so be sure to do your homework and work with a professional before jumping into any purchases. If you’re careful not to overextend yourself financially, it ultimately might be worth the chance at a substantial reward.

 

Picking the right loan

A fixed-rate mortgage loan locks in today’s low interest rates for the life of your loan, but you’ll also need to choose the length of the loan. Traditional mortgages are 30 years, but shorter terms, like 15 years, are also available. A shorter term mortgage loan often offers a better interest rate. You’ll end up paying substantially less in interest over the life of the loan, but your monthly payments will be higher.

 

Connect with a U.S. Bank mortgage loan officer to learn more about how to find a low-interest mortgage loan.

Mortgages at U.S. Bank

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Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.

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