To Buyers, Mortgage Rates May Be Overrated?

Changes in down payment requirements have more influence over home buyers’ willingness to buy than changes in mortgage rates, according to a new study published by economists at the New York Federal Reserve.

The Fed’s survey of buyers and renters found that the impact of interest rates may be overrated compared to the even the smallest changes in down payment requirements. The study found that dropping the required down payment from 20 percent to 5 percent increases the willingness to purchase, on average, by 15 percent among buyers and 40 percent among renters.

On the other hand, decreasing the interest rate on a 30-year fixed-rate mortgage raised the willingness to purchase a home by only 5 percent, on average. Buyers showed more influence by down payment changes even though the mortgage rate change could save them more money than the lower down payment.

Source: “Down Payments Motivate Buyers More Than Interest Rates,” Real Estate Economy Watch (July 20, 2015)