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Damn, You're Young...

I am stealing that line from Neil Cavuto of Fox Business Network

In a recent broadcast of Fox News, Cavuto mentioned how someone asked him about mortgage rates. The person was hesitant to buy a new house because mortgage rates went back up. Cavuto asked him what he was going to do... wait to see if they go back down was the response.

Cavuto, in his off tangent thinking, begins to share how "Damn" young this guy is. But his answer to the potential home buyer was "5.25% is pretty good." Then he proceeded to tell the young man to "Shut up."

Why did Cavuto tell him to shut up? The answer is pretty simple. "5.25% is pretty good." Remember when mortgage rates were double digits. Remember when prime was over 20%. Remember when...

Most people, if they think hard enough, will remember those days. Now, doesn't 5.25% or even 5.75% sound "pretty good." Yes, it does. And yes, 4.75% sounds better. Unfortunately, those days are in the past, and soon you will be saying I remember when rates were 4.75%. For those of you who waited to see if rates would go any lower, are now going to say, I remember when rates were 4.75%, but all I got was a 5.75% rate. But you know what? That is still "pretty good" compared to what it could be.

So what is the moral of this story? It is shut up about the rates. They are going to be what they are. It is only a matter of how long does a borrower want to wait to lock in their rate. 4.75% is gone. 5%+ is in. It is still a "pretty good" rate.

Oh, and to put this into monetary terms, a $150,000 mortgage at 4.5% over 30 years has a payment of $706. The same mortgage at 5.25% has a payment of $828. That is roughly $36 per .25% increase to the rate. That breaks down to just over $1 per day per .25% increase to the rate. Can you afford an extra $1 per day to go to your mortgage if rates went up .25% tomorrow. If the answer is "No," then you need to do something today. If the answer is "Yes," then can you afford a full 1% increase (or $4/day)?

Each day you spend watching the rates go up is just another dollar that you could have been saving.

If you want to watch the Cavuto news clip, click here.

Posted by Jason Price on 06/09/2009 11:07 AM

Comments (72)

Interest Rates in the Mortgage / Finance Channel

mortgages, interest rates, loans

Post is included in group: Mortgages
Post is included in group: All Things Florida

72 Comments on Damn, You're Young...

JUN

Neil: Thanks for putting this in perspective. Yes, 30 year rates at 4.5% appear to be over for now. But that shouldn't deter borrowers who still have the opportunity to borrow in the mid-5's. Take care.

Neil,

Well said!

Back in 1985 I was financing million dollar homes at 21.5% and the buyer's concern was closing. Those closing always ended with the same two thoughts, "thank you" and "let me know when the rates drop!" Today's rates are historically extremely low!

Bill

It is true.. I just wrote something similar in my post on Monday. Yes Rates are up, but still at historically low levels. I think back to my first mortgage when I was paying 11.25%, and when I hear people say "gee thats high" I often cant bite my tongue fast enough and literally laugh out loud and have to explain why I am laughing....

it is all a matter of perspective.

I sure do remember when interest rates were double digit....people of today are too spoiled...they are about to get a crash course in reality

I would tell someone to shut up too if they were being stupid. I know that is harsh but sometimes you just have to be blunt and straight forward.

I remember a few years back getting a 7% 30-year fixed and was VERY happy....those days are coming back.

Damn, you're right. ;)

Great post, good data and people who have been sitting on the fence waiting for something to 'happen' need to take into consideration that ANYTHING CAN.

Neil - Time for the couch potatos to get rolling. Keep pushing the message that tese are the good ole days concerning rates.

Great post. A great way to demonstrate to buyers that there's not much upside to waiting around for rates to drop again versus the downside of rates continuing to rise

Mr. Price - Well put, my friend. This has been a horse many of us have been beating for quite sometime. Hopefully, folks are listening.

Interesting blog post - and I see people wait all the time who are trying to get "something better" - whether it's the house or the rates!

It's very true and I am constantly reminding my "under 30" buyers about those days in the late 70's to help them keep it in perspective. My first mortgage in 1991 was at 8-1/3. When I remind them about that and they realize that was only 20 years ago, it really brings it in perspective.

Jason - Right you are. This puts things in sharp perspective very quickly.

This is a very true post. What doesn't help us is the few companies out there still stating the 30 year fixed for 4.25%!. Many borrowers see these ads and assume that they are still there. It comes back to us to educate everyone on the true, fair state of rates and loans.

DANG . . . some people are never happy. My interest is 6.25% but I keep it at that level for the write-off at year's end on interest. Knocking off 1% would be IDEAL for buyers!! GEEZ!!

Thanks for breaking it down Jason. Every time someone breaks it down into little pieces it just seems much easier to grasp

I was tickled pink when first home I bought was 12.25% in 1983 when rates were 16% and adjusted upward. The current rates are super..affordable more buying horse power to purchase a home.

It would be a shame to wait a year and find out rates are higher, home prices are higher, and the $8000 first time home buyer credit is GONE!! :)

Just 3 words regarding rates -- It's All Relative.

I absolutely remember those double digit days and I'm telling every buyer who'll listen that he needs to get up off of the fence.

dude your old! rates used to be really high when i was born.

Jason: Posts that contain examples such as yours, do help get the message regarding interest rates across to conumers. When disected in this way, the dollars and cents are much more clearly understood. The comment made regarding some lenders advertising of older lower rates is true though. People so desperately want the rate to be that low (or lower) that they hold-up buying/refinancing in the hopes that they will find a lender that will deliver on those advantageous rates/terms. Unfortunately, that can cost them valuable time and money. Somehow our industry needs to find a way to more affectively educate the public regarding rates. Until then, it will be up to each of us to provide that education one client at a time. Thank you for your post!

Gene Mundt, Professional Mortgage Banker Chicago Bancorp

The guy just didn't know what he didn't know. It is hard to put things in perspective when you don't know what the other side is like. Just like a lot of Realtors and mortgage brokers did not realize that the market wasn't always fabulous.

Nice break down of what the rates increase means to a payment and your right people need to do something now if they want the low rate.

Jason what a great post and a great way to put it into "real terms". I think some people get so hung up on one number they can't adjust their thinking until they are gently hit over the head with what it really means.

Right on! Still, it's always a good idea to look before you leap!

That's a very clear and concise way to put it...I love analogies like this.

True

Nice post! That is a great way to put it! Thanks so much!

Sorry, I'm confused. Are we agreeing that we are supposed to tell younger and less experienced people that they are young and to shut up? Is that what we're coming to? Did in throw in the obligatory be grateful you have a job? The second half of your post made up for the original premise though. It is good to spell out for buyers the actual difference in rates,

However, if 4.75% rates are history - what are 18% rates?

Why anyone would quote Neil Cavuto or waste their time wathing Fox Noise is beyond me but I do agree 5.25 is really good. Years ago my first sale was a home at 13.85% *OUCH*

I am a young person too but I got my first house about 6 years ago at a rate of 6.5% and thought "damn thats good" and it was and still is (even though I refinanced to 4.75% recently). My dad recently retired from the home building industry and tells me of rates at 12%+. I'd still say now is the time to buy.

By the way all the big builders are starting to buy up land. They spend hundreds of thousands of dollars to find out when the best time to buy is... Well folks if its good enough for them (when they have research behind them) then it should be good enough for anyone!

Buy NOW!

Jason, it is all about perspective and how old you are. I remember when interest rates were at 18% and 11% looked pretty darn good. Perspective is everything.

First home 10.25%. I remember well. There will be a lot of people who are sorry they didn't buy now. Life is a roller coaster ups and downs.

Jason..Nice to see you posting..I miss your posts. You are so right, I remember when we bought our first home, interest rates were just going double digits...We thought we were getting a bargain.

Loved your breakdown..I had to do the same thing for a buyer recently for they were worried about the increase in interest rates..Once I broke it down like you did it seem to put it all into perspective for them.

Price of Procrastination

Jason that is a great way of explaining it to people. When I bought my first house my rate was a 12.5% assumable and I was glad to get it! Why is it people really thought rates were going to continue to go down?

I remember my first home purchase in l981. I got a 14% rate, and wow what a bargain it was. Most banks were charging 18%. My home town bank where my family and I banked took care of me. We just have to remember back in the good ole day the bank president and loan officers knew everyone by their first name and a handshake and a one page promissory note took care of most everything. How times have changed. I supported Jimmy Carter who was president at the time but wow he was poor financial leader but a good guy. what is it they say about good guys (they always finish last). Well here's to 5% interest rates!!!!

I must be young, because I don't remember the rates ever being that high...I was probably a kid back then, or not yet born. But you're right - people waiting to see if the rates will go lower will be in for a rude awakening if they continue to wait.

What is also being overlooked by some of us who are old enough to remember the 80's are the sky high interest rates on cd's. How many on here remember the ads about retiring a millionaire when that really meant something.

Jason, when I bought my house in 1981 (Jimmy Carter was President) the interest Rates were 15% and I believe they went up to 19% before they came back down. The Buyers who did not buy at 4.75% because they were greedy and waiting for it to come down lower, should be happy that they can still get 5.75%, because that too might be a thing of the past very soon.

Jason...good post... needed insight.....good informative show....knowledgeable Host! you have struck Gold with this. I, too, remember my first interest rate in 1977 [ now that is old, right.] actually I was single & bought my own house all of 950sq ft. 3bd 1.5ba cute & cosy & did need work. It was mine all alone mine & I was thrilled; but do have to say that 5.69 [MI today rate] is loads better than mine then. Another thing all the 'ladies' out there need to know is that in 1978 when Sal & I married. sold my little place, & applied for a mortgage on "Our" house--that company would NOT accept my salary nor my history of previous Home ownership / payment history. Now that really pi.... me off. apparently still does. Times swing both ways--hope that we never go back there.

Just had young first-time buyers close on a bank-owned listing at 4.75%. But I really am sad for my other young, first-time buyers who are watching rates rise while they wait for that short-sale acceptance from a bank.

Amen!!! It is about time the fence sitters got off and bought property!!! I remember the 18% mortgages and blocks of foreclosures all over our market.

You hit the nail on the head! I bought my first house in 1980 at 13% and didn't know the difference. It was was it was. I wasn't in the selling business then, just property management. It is a walk in the park now.

I remember when my mom got a special rate for low income single parents... and that was 15%. Regular rates were closer to 20%. I hope we aren't going there, but I fear we are.

Life is one big cycle. Over the years we have had booms and busts throughout US history. We are in the bust phase right now. Sooner or later it will turn

Hi Jason, I hope we never see interest rates on mortgages at 20% again.

So true, so true! People love to get "freaked" out over things that when looked at in detail are relly no big deal! Though, you got me thinking....nobody ever says "Damn, you're young" to me anymore! :(

I don't think I've seen (or will see) a better time to be a 1st time buyer in regards to rates, prices, down payments, and tax incentives. I bought my first home fha with closing costs and down payment coming in around 15% and an interest rate of 8.875% (+PMI)...and I was happy to do it!

It amazes me to see buyers "on the fence" about buying a home where the down payment & closing costs will in many cases come back as a tax credit and the 30 year fixed payment will be less or the same as if they were to rent the home. Compared that to only 3 years ago when people were jumping to pay twice as much as rent to get into an adjustable rate that would reset in 3 years! Where's the middle ground?

Hi Jason -- Solid advice, one can never time the bottom, and even now is beyond an incredible time to buy with ALL of the incentives out there.

JUN

And if you know why those rates are going up... you'll understand why it's important to lock in now.

Jason, Things sounds familiar to me. I keep telling people that 5.25% is good. Hey a few years ago 6% was great! You are right now is not the time to float. I attended a closing where the buyer had done exactly that and was surprised when his rate went from 4.75% to 5.25%. Thanks for helping with a great way to explain this to buyers.

I wasn't in real estate then but I remember the 18% mortgages. It came along with gas lines. I was in college and remember thinking how unfair it was that the world was in financial ruin right as I was starting out. We have come full circle. And 5+% is fabulous.

First time home buyers, especially, wait and wait and wait to get the 'best deal' and usually end up losing out because they are not getting the professional guidance and advice they need. Then again some first time home buyers think they know it all and just don't listen. It's nice to see the numbers put into a different perspective, thanks for the post!

Go online and look at Freddie Mac's rate comparison for the past 30+ years. Rates are still very low and now is still the time to take advantage of them!

Jason, you are right. When I started I was so happy for a client to get under 9%!!!

I can understand your frustration with borrowers who are not satisfied with 5% rates when they think they can and should get a 4% rate. I just had a borrower miss out on 4.875% because she wanted to hold out for 4.75%. Of course rates are almost a full point above that in only a matter of 2 weeks time. Greed sets in and not being satisfied with the current conditions. Unfortunately, it is human nature. Sometimes us originators have to be part time psychologists to convince our clients that today is the day to act.
Easier to say than to do.

Well said! People's expectations re: rates are so ridiculous at this point. It's like, you really think 5.5 is bad?!

When we bought our home several years ago, we were excited with 8.375%.

I like the way you've broken down the numbers.

The only thing that would make the Cavuto interview really appealing would be for the young person to slap him as he deserved for being a rude. Can you imagine what would happen if you said this to your young client?

I have to laugh at the people who were offended at Cauvto's supposed rudeness! They completely missed the point.

The clip was dead on and if more people were that blunt we'd be in a much better position right now.

Oh, yeah - I almost forgot the gratuitous AR "Great post!" for points!

I paid 8% interest on my present home loan in 1987 and was damn happy to get locked in at that rate. By the way I like Neil Cavuto. But thats just me, different strokes.

Buyers definitely should not wait for rates to go back down. I don't believe that many of us will ever see such low rates again. Anything under 10% will someday be considered low.

You are so right. This is the best time to buy. The higher rates are coming soon.

i just want to say thank you to everyone who has commented on this post. Whether you agree with Covuto's way of handling the situation or not, we all seem to agree that rates are still good despite them being higher then they were two weeks ago. And now is still a great time to buy...

Yes, compared the years ago the rates are "very reasonable" and it's how you look at it.

Patricia Aulson/Portsmouth Nh Real Estate

Great thought provoking post - personally from a younger person's perspective (29 years old), not only have we not really witnessed or seen interest rates in the double digit range (last time was 1990), our generation probably doesn't even understand the importnace of having a 30 year fixed mortgage when compared to a more aggressive ARM offered just a few years ago.

Unfortunately there is a huge lack of mortgage, let alone borrowing, education in our school systems. I think the only education I received in high school related to personal finance was how to balance my check book - then in college the only personal finance we ever saw was an onsluaght of credit card companys trying to push numerous credit cards down your throat in exchange for a myrad of coupons or t-shirts. Great lesson by the credit card companies - how much debt can we get college students to ring up (whom most don't work) before they graduate!

I think that the professionals in our industry just have to keep reminding buyers about how unbelieveable the opportunity is to buy right now - rather than be fixated on interest rates - remind them to consider where house prices are right now. If they can qualify to purchase and the payments are affordable then they should purchase rather than wating another few months for rates to fall down again (which is an uncertain event) all the while the home prices are beginning to climb, especially in the first time homebuyer price range.

Jason - very timely reminder. We get greedy when we see these low rates and take for granted that they will be around forever. Cavuto has a way with words doesn't he?

Jason - You hit the nail on the head with this post. Congrats on the feature! This is a great read for any buyer who is out there still sitting on the fence.

JUN

Well said Jason. People don't realize how low (historically) the rates are right now.

JUN

Looking at the posts, alot of us remember the high interest rates. Me, 1981 first house, VA approved, $10,000 down....interest rate: 12.5%

JUL

Jason, we were thrilled when we bought our first home and it was 7%. People are spoiled today by the last few years of low rates. Better take advantage of the rates we have now because they aren't going to stay here.

Sharon

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