The Mortgage Interest Rate Game…
As many of you know, interest rates have started to creep upward, well, they jumped upward, within the last 30-45 days. As they have started to settle back to around 4.3%, this range has been a lot higher than it was in the mid 3% range. Most economists believe the 3% interest range is gone for the foreseeable future, maybe our lifetimes. So what does this mean for you?
This is what we know. If you are a buyer, your buying power has eroded to the tune of a few hundred dollars per month on a $250,000 home. Put simply, you will pay $200 more per month for the same home you could have purchase in May of 2013. Or, if your monthly budget was say $1,000 per month for a mortgage, your purchasing power just went down by about $25,000. See the attached chart for a payment table based on purchase price vs interest rates. If you are a seller, at some point, rising interest rates will eat into your equity. We are not seeing this yet, but it will happen as rate continue their upward march.
Where are they headed?
"Doug Duncan,the Chief Economist at Fannie Mae said “I don’t think the Fed ultimately would be troubled with a 6.5 percent mortgage rate".”Frank Nothaft, Freddie Mac’s Vice President and Chief Economist,said this. “As the economy continuesto improve we expect to see continued upward movement in long term interest rates.” “At today’s house prices and income levels mortgage rates would have to be nearly seven percent before the U.S. median priced home would be unaffordable to a family making the median income in most parts of the country.”
Most experts don't think rates will reach these levels until late 2014, but based on 2 chief economists at the companies that purchase mortgages from your bank, these numbers are not unexpected.
What will happen if I wait to purchase? See the attached payment schedule based on purchase price and interest rates.
Historically, interest rates have averageg about 8.69% since 1972, so 4.3% is still quite good, and if the economists say that 6.5%-7% isn't unlikely, this is still better that the averaqe of the last 40 years. But, why wait if you can lock in your interest rate in the mid 4% range for the next 30 years? As you can see from the chart below, it can add up to tremendous savings over the life of the loan to start sooner rather than later, if your situation permits.
If you think you may be affected by these events… call me to discuss your particular situation, I'm sure we can figure out the best approach for you.
Posted on July 29, 2013 at 8:11 pm Marvin Jensen