Tag Archives: Interest rates

Interest Rate and Mortgage Payment Costs Across Time

Even with residential mortgage rates projected to rise, it’s always good to take a moment, look back and see that we are in good shape historically.

Back in the 1980s, interest rates were at an average of 12.7% (OUCH!) and on a $200k mortgage, that monthly payment would be around $2,166.  Here in 2014, our average rate has been 4.10% – meaning the monthly payment on that same house is around $966.  What a different a those interest rate points make.  Check out the chart below to see the other periods of time and their related payment amounts.

This information, combined with the hot housing market in North Atlanta is more evidence that now is a great time to buy!   Please contact me as you consider any real estate transaction. 

Average Interest Rate & Mortgage Payment Across Time

Interest Rates and Mortgage Cost Across Time

The average 30-year fixed mortgage rates and the approximate payment for a $200,000 mortgage. Payments are principal and interest only based on a $200,000 fully amortizing mortgage. Source: Freddie Mac

Infographic provided by KeepingMattersCurrent.com

 

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For Buyers – The financial opportunity of a lifetime?

We often point out that a buyer should be more concerned about the COST of a home rather than the PRICE. Price obviously is a component of cost. However, unless you buy all-cash, you must also be concerned about the financing of the purchase. The price and the financing together determine the cost of a home. Today, we want to look at only the financing piece.

An opportunity exists today because of recent government involvement; an opportunity that may never again be available in our lifetimes. There has been much discussion about what role the federal government should have in supporting homeownership. We will leave our opinions on the debate for another time. However, we want to alert you to two advantages available to a purchaser today that may disappear in the future:

  • § Historically low interest rates
  • § The ability to lock in these rates for thirty years

Interest Rates

Because of the financial crisis, the government stepped in and instituted a series of programs which pushed mortgage interest rates to historic lows. If we look at 30 year mortgage interest rates before and after government intervention we see the impact these programs had.

According to Freddie Mac, from 2006 to the start of the financial crisis (the fall of 2008), the average rate was 6.29%. Since then, the average rate has been 4.92%.  

A purchaser can still get a 30 year-fixed-rate-mortgage at approximately 5%. However, interest rates this low may soon disappear. The government has questioned its role in supporting homeownership. In the administration’s REFORMING AMERICA’S HOUSING FINANCE MARKET: A REPORT TO CONGRESS, they are very strong in voicing their thoughts on this issue:

…our plan also dramatically transforms the role of government in the housing market. In the past, the government’s financial and tax policies encouraged housing purchases and real estate investment over other sectors of our economy, and ultimately left taxpayers responsible for much of the risk incurred by a poorly supervised housing finance market.

Going forward, the government’s primary role should be limited to robust oversight and consumer protection, targeted assistance for low- and moderate-income homeowners and renters, and carefully designed support for market stability and crisis response…

Under our plan, private markets … will be the primary source of mortgage credit and bear the burden for losses.

What are the probable results of this decision?

The Royal Bank of Scotland:

“The (government) currently provides 95% of housing finance in the U.S.; any reductions of their involvement in supporting mortgages mean interest rates will have to go up to induce private lending.”

AnnaMaria Andriotis, writer for Market Watch:

“In the proposals were changes that will mean more expensive mortgages, with higher fees and, probably, higher interest rates, larger down payments and, in the near term, fewer lenders to choose from.”

The day of a 5% rate seem to be coming to an end.

Locking in a rate for thirty years

We must also realize that having the ability to lock-in a rate for 30 years may soon be a thing of the past.

There are a growing number of people who think that our mortgage industry should imitate those of other industrial countries around the world. If we do start limiting government support for the mortgage process, the 30-year-fixed-rate mortgage may disappear. Other countries, like Canada, only allow a purchaser to lock in a rate for a five year term. After that, the borrower must renegotiate a new mortgage at current rates. Could that happen here?

Mark Zandi, Chief Economist of Moody’s Economics.com addressing the administration’s recent report:

“A private system would likely mean the end of the 30-year fixed-rate mortgage as a mainstay of U.S. housing finance. A privatized U.S. market would come to resemble overseas markets, primarily offering adjustable-rate mortgages. Based on the experience overseas, the fixed-rate share in the U.S. would decline to an average of between 10% and 20% of the mortgage market compared with a historical average of closer to 75%.”

Bottom Line

The COST of a home is dramatically impacted by the mortgage component. Today, we can get a 5% mortgage and lock it in at 5% for the next thirty years!! Both of these opportunities may disappear in the near future. You should take this into consideration if you’re looking to purchase a home.

SOURCE:  KCM Blog

“Shoulda, Woulda, Coulda”

  It is an all too familiar sad story…

“If I had only bought that piece of real estate back in 19something….”

Housing prices may or may not have hit rock bottom, but I believe that people who continue wait to find the market’s bottom are likely to miss out on the buying opportunity of a lifetime.

Case in point:

Interest rates can be every bit as important as price to the cost of the real estate transaction.

Let’s say that $500,000 home declines in value another 10% to $450,000.
BUT, interest rates rise 1% during the time you wait. 

(Very likely scenario given current market conditions.)  Assuming you finance $400,000 of the purchase price of that home, the 1 percentage point difference between a 5% mortgage and a 6% mortgage will cost you more than $90,000 over the life of a 30-year loan.

If you have a home to sell, hire a professional (like me!) who will get it professionally staged and photographed, priced right, and marketed aggressively… and you should have no problem selling this Spring.  Inventory levels are way down and buyers are looking for nice properties at a good price. 

Then go grab yourself the deal of a lifetime!