The great author and speaker Og Mandino once said, "I will act now. I will act now. I will act now."
This is great advice for prospective homebuyers over the next 45 days, as two key government programs that have kept home ownership more affordable than ever wind down to their completion.
First, the Federal Reserve's Mortgage Backed Securities (MBS) purchase program will come to an end on March 31, just two weeks away! Without this program home loan rates could have been at least 1.00% higher...and potentially even higher...over the last year. Throughout 2009, the Federal Reserve was the primary buyer for MBS, purchasing as much as 80% of the supply in a given month. When this program ends, a lack of willing buyers will likely cause MBS prices to drop and rates to rise as a result.
The second shot will come on April 30th, which is the deadline for purchasers to get under contract to qualify for the Home Buyer Tax Credit program, which has been providing a tax credit of up to $8,000 to first time homebuyers and up to $6,500 to repeat purchasers.
Just How Much Will Waiting Cost?
While no one knows for certain what the future holds, two things appear clear. Home loan rates will likely be higher in the future, and free money from the government will be gone. These deadlines will affect both affordability to purchase and the opportunity to refi.
In a recent Wall Street Journal article, it was estimated that 37% of all borrowers with a 30-year fixed rate have interest rates of 6% or higher. The article also quotes Credit Suisse that more than half could lower their rate by nearly 0.75%.
For prospective homebuyers, any increase in interest rates erodes your purchasing power. In other words, a 1% increase in rate represents an approximate decline in purchasing power by 10%. For example, if rates increase by 1%, people who qualify for a $200,000 purchase price today may only qualify for a purchase price of $180,000 afterwards.
If you or anyone you know is looking to purchase or refinance a home, waiting could be costly! Act now...so you can save later! Contact me for a complimentary mortgage planning session.
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