The drop of mortgage rates by more than 100 basis points since their peak at 7.8% has translated into savings of approximately $366 every month, according to analysis by Realtor.com. The calculation assumes a median price of $414,000 and a 10% down payment, which results in an average monthly payment of approximately $2,385.
It's astonishing what a difference seemingly incremental changes in interest rates can make.
“The good news is that as mortgage rates drift lower, that can have a big impact on affordability," says Realtor.com senior economic analyst Hannah Jones.
Granted, part of this monthly cost difference is due to seasonal price fluctuations: February home prices are normally a couple of percentage points lower than in the fall. (These seasonal patterns can also help homebuyers time their purchase to maximize affordability.) Yet while home shoppers often focus on home prices, the mortgage rate they're getting could have a more significant impact on their pocketbook.
"Buyers are going to feel the impact of mortgage rates more acutely, simply because of how loans work," Jones explains. "Home prices would have to shift a lot more to impact your monthly payment in the same amount that a mortgage rate change does."
If mortgage rates were to dip by an additional 0.5%, to 6.1%, the monthly payment on a median-priced home would fall to $2,263. At a 1% rate dip, to 5.6%, it falls to $2,144. This would amount to savings of $607 every month compared with last October, when mortgage rates were much higher.
That greater affordability would probably be enough to spark more interest from potential buyers who have been waiting out the recent cycle of higher mortgage rates.