Three Reasons Low Mortgage Rates Are Key

Mortgage interest rates are currently at historic lows, and home prices have been low lately as well. If you're in the market for a new home, it's a smart idea to take advantage of the best mortgage rates and low home prices.

Three reasons a low mortgage rate is key:

You'll ultimately pay far less for your home. Even shaving one or two percentage points off of your rate can drastically reduce the total amount of interest expense you spend on your home. Using this mortgage calculator, clicking on "show/recalculate amortization table" with various rates can show you the difference in interest cost over time.

A lower monthly mortgage payment. New homes can be expensive. If a lower mortgage payment gives you a few hundred extra bucks every month to put in a savings account for house-related repairs and projects, all the better.

A locked low rate for the long term. If your mortgage is fixed, you'll be safe from rising interest rates when they start to go up.

On the flip side, housing prices are also low these days. It's a double whammy for those who choose to buy now -- the best mortgage rates and low house prices.

Three benefits of buying while house prices are low:

A bigger equity cushion. If the price of your home is lower, you'll be able to build equity in it faster and reduce your risk of ever being upside down on your home loan, or owing more on your mortgage than your home is worth.

A lower down payment. A lower price means you'll be able to make a bigger dent in the down payment, which may help you avoid paying private mortgage insurance, or PMI. Typically if a down payment is less than 20% of the mortgage, the borrowers will have to purchase PMI, which can cost one-half to 1% of the total loan amount.

A lower property tax basis. Property taxes assessed on homes that are appraised at lower values are lower -- and appraisals frequently aren't updated to reflect changing values, so buying when house prices are low makes sense.