Saturday, August 21, 2010

Mortgage rates hit the mid-4’s!

A snippet of an article from CNN’s Money section:

NEW YORK ( -- Mortgage rates continued to decline this week, plunging to the lowest level in decades, according to surveys from Freddie Mac and Bankrate.

Freddie Mac's weekly report said the 30-year fixed rate slipped to 4.44% for the week ended Thursday, the lowest since the government-backed lender began tracking the rate in 1971. Last week's rates stood at 4.49%, and a year ago it was at 5.29%.

Wow!  Some of our readers are doubtless old enough (like us) to remember the early 1980s rates of 14%, 16% and higher.

Here’s a nifty chart from The New York Times that gives a great visual of the history of home mortgage interest rates going all the way back to 1900!

historic mortgage rates 1900 to 2009

What’s it mean to you, the home buyer?

If you’re buying, a 1-point drop in interest rates means you can buy more house. A lot more. Call or email us to help you figure out the numbers for your own situation. But here’s an example.

Let’s say you’re financing $150,000. . .

Amount Financed = $150,0004.5%
Mortg Rate
Mortg Rate
Mortg Rate
Monthly Payment
(principal & interest only)

Let’s work it the other way.

Let’s say you’re trying to keep your payment at about $950 per month, for principal and interest (not including property taxes, HOA fees, etc).

Desired Payment = $950/monthInterest Rates are 4.50%Interest Rates are 5.50%Interest Rates are 6.50%
How much home can you buy for desired payment?$187,000$167,000$150,000

Holy cow! If rates drop from 6.50% to 4.50%, the homebuyer who’s aiming for a monthly mortgage payment of $950 can suddenly buy $37,000 more house for the same monthly payment.

Given that mortgage rates change almost daily, but home prices change much more slowly, home buyers do themselves a favor if they watch long-term mortgage trends instead of focusing only on home prices.

What does this mean for home sellers?

If you’ve been considering a price drop lately, you might be able to put it off for a few more weeks. The rate drop means potential buyers’ money goes further. Of course whether you need  a price drop or not depends on your situation. Check with your Realtor. And ask yourself why you didn’t hire Chris & Heather, The Phoenix Agents at Thompson’s Realty in the first place. We’re awesome and here’s some of our clients who say so.