ATTENTION Home buyer: effect on your monthly payment when interest rate rises (maybe even up to 8%) by year end
From our colleague Pacita Dimacali across the Bay in Alameda, California comes this great post. It started with a report by Steve Harney, one of my favorite real estate analysers, and states in clear terms what we expect to see happening later in 2010--and the effect it will have on buyers.
Questions about how this might affect buyers in San Mateo County and Silicon Valley? Give me a call.
In case the buyer is on the fence, and not sure whether or not to jump in and buy now or later
Here's something to think about (Source: Steve Harney's Keeping Current Matters)
Know What the Experts are Predicting for Interest Rates in 2010
If we look past just the price of a home, we know that the buyer will be concerned with its overall cost. We then realize how important the financing component is to the purchase. Where are interest rates headed in 2010? Here is what people in the know are predicting:
HSH & Associates: rates will nudge closer to 6% than 5%
Moody's Economy.com: 6 percent that sounds about right
Washington Post: 6 percent by the end of 2010
Barry Habib of Mortgage Market Guide: It could be as high as 6.5%
Morgan Stanley:7.5 percent to 8 percent
Related articles:
- Morgan Stanley Sees 5.5% Note as U.S. Faces Deficits
- Investors see mortgage rates rising as Fed wraps up buys
So how will this affect the buyer?
Scenario: $500,000 purchase price, 1 % loan origination/discount point, conventional loan, in Alameda CA.
What is your estimated PITI (principal, interest, taxes and insurance) payment per month?
5%
6%
7%
8%
5% down
3529
3827
4140
4465
10% down
3281
3563
3859
4167
15% down
3090
3356
3636
3927
20% down
2814
3065
3328
3602
With a 5 % down payment, the difference between a 5% interest rate today, to the lowest predicted increase up to 6% by the end of the year is $298/month more or $3,576/year.
It used to be that to illustrate how little or insignificant the difference is in prices, we compared them to the cost of a cup of coffee --- that's when coffee cost mere "pennies".
Today, it's a different story. So let's use Starbucks coffee. A "venti" sized coffee at Starbucks costs about $3.50. So taking the cost of $3,576/year for the difference between interest rates of 5% versus 65, that's 1,022 cups a year or nearly 3 cups a day.
Extended Home Buyer Tax credits
And...let's not forget that qualified buyers may receive tax credits if they are in contract by April 30 and close by June 30, 2010:
- First time home buyer tax credit: $8000 tax credit
- Move up/repeat buyer tax credit: $6,500
Hmmmm
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