Ask the Expert: We have enough money to make a down payment, but…

The past few years with historic low interest rates have changed home buyers’ sense of what a normal interest rate is!

Today, the still-low interest rate on a 30-year fixed-rate mortgage is very attractive at less than 5 percent on conforming loans.

It’s hard to believe, but in 1981 the interest rate on the same deal would be more than 18 percent — unthinkable in today’s market. The average cost of a home in those days was $82,500, according to the Census Bureau. If a person took out a mortgage then, with an interest rate of 18.45 percent, the monthly payment, with 20 percent down, would have been $1,019. That’s the equivalent of $2,500 today, adjusting for inflation, according to Yahoo Finance.

Imagine in that scenario that 82 percent of your payments would have gone to interest.

Today’s market, even with a slight rise in interest rates, is still a great deal. The average cost of a home has risen to $322,700, but only about 43 percent of those total payments would now go to interest. A huge difference.

But will interest rates go down in the next few years? Unlikely.

At less than 5 percent, interest rates are very low. A few years from now, you could reduce the amount of your mortgage by $10,000 or even $20,000 but the monthly house payment would be the same or more. That could happen because interest rates will undoubtedly rise over the next few years.

In the meantime, the price you pay for renting a home or apartment will also rise. The monthly payment on a home you buy this year, however, will remain the same, assuming you opt for a fixed-rate mortgage.