Tuesday, January 12, 2010

Mortgage Rates to Rise in Spring

I was going to try to write a witty, engaging piece about how mortgage rates are expected to rise in the coming few weeks and months. But being witty about money is hard.

Instead, I’ve blatantly stolen this tidbit from the wonderful Kris Berg’s San Diego Home Blog (via Phoenix's own wonderful blogging Realtor Jonathan Dalton of All Phoenix Real Estate).

From Matt Carter at Inman News:

The Mortgage Bankers Association forecasts a more abrupt rise in 30-year fixed-rate mortgage rates, from 5.2 percent during the first quarter to 5.7 percent in the fourth. By the final three months of 2011, the MBA expects 30-year fixed-rate mortgages will average 6.2 percent.

What does this mean if you are waiting for the mother of all recession discount sales? If you believe that a 1% bump in mortgage interest rates is in the cards, you had better be hoping for a more than 10% price reduction to go along with it. Otherwise, you will be no better off.

Kris is right. Home buyers, don’t forget the power of interest rates!! Let’s use median numbers currently applicable in metro Phoenix.

  • Let’s say when rates are 5.25% you can afford a mortgage of $159,000.

  • If rates go up to 6.25%, you can only afford a $142,000 mortgage, unless home prices simultaneously dropped by 11%!

Don’t guess at how future expected mortgage rate increases will affect your buying plans. Email me for a mortgage amortization schedule. You can adjust the purchase price, down payment amount, and the interest rate to see how various scenarios affect your planned home purchase.