With everyone so freaked out about interest rates "skyrocketing" to the mid 5s, and nobody wanting to make a move until the rates on 30 year fixed mortgages return back below 5, I would consider this: It is unlikely these rates will get back below 5% Yes, we have seen some favorable pricing updates in the past week and bond activity has increased, the fact is the the purchase of MBS has fallen out of favor since the government announced at the beginning of the year it was going to purchase $500 billion in MBS. Couple that with an inevitable weakening of the dollar, and rates will stay in the 5 range, even 6 possibly by the end of the year
With the decline in housing prices here in Clark County, there are still deals out there to be had, and the market has become frenzied for homes priced below $200,000, especially in the $150,000 range.
With that being the case, if one is so rate sensitive, why not consider a 15 year term? Rates today, as of June 29th, were 4.875% on a 15 year term, as opposed to 5.375% on a 30 year term.
For a $150,000 loan, the payment(principal and interest) on a 15 year term is $1176 per month. On a 30 year term, it is $839, about $300 less per month. Looking at it more closely, for an extra $300 per month, you would have paid $61,760 over the life of the loan in interest. On a 30 year term, that amount is 2 1/2 times that at $152,383!! That is over $90,000 savings in interest alone. In addition, if one decides to sell or refinance within 5 years, there will actually be some equity(given the market doesn't fall anymore) in one's home as opposed to one with a 30 year term.
For a $100,000 loan, the payment on a 15 year term is $784 per month. On a 30 year term, that payment is $559 per month, only a $200 difference in payments. The difference in interest paid over the life of the loan? $61, 418 less in interest paid on a 15 year term!!!
I am saying this because I have been picking up a significant amount of purchase business for homes in the low to mid $100,000 price range. For loans of a smaller size, a 15 year term to me makes more sense, especially given the fact that not only are customers rate-conscious now, but due to this housing market over the past 2 years, customers are becoming equity conscious also.
Thank you again for your business.
Sincerely,
Paul W. Thompson
Wells Fargo Home Mortgage
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