How Bad Is It?
As I type this blog post, it's raining outside, pouring actually. And that's fitting because if you've been looking to get a mortgage since the presidential election, you've been facing your own personal deluge of sorts as well. Interest rates are higher, no doubt about it, and the worst two week bond rout in the last 26 years has translated into approximately a half percent increase in rates to most programs.
So how bad is it?
There's a few ways to look at this, and the chart below shows that bond prices are approaching where they were exactly one year ago. It's not as if we've returned to the Carter administration overnight, of course, and rates are still very favorable from a historical perspective. In our chart here, note that the lower the lines go, the higher the rate, as bond prices and yields work inversely.
But the human mind doesn't tend to work inversely. Most of us look at what's been lost in the immediate term and focus on "the one that got away." If we know that rates could be as much as .5% higher, what does that do to the typical payment on a 30-year fixed rate loan? Here's how we can do the math quickly, in our minds, to get some perspective on just how much/little has changed:
- Loan amount: $400,000
- Payment at 3.500%: $1796
- Payment at 4.000%: $1910
- Difference: $114 per month
How about the kinds of loans we see here in Marin County?
- Loan amount: $1,000,000
- Payment at 3.500%: $4490
- Payment at 4.000%: $4774
- Difference: $284 per month
Now follow along. At today's rates, a half point increase in rate translates, roughly, to 3% of 1% of the loan amount. So above our rough estimates using this formula in the field would have yielded $120 and $300 respectively. Not too shabby.
As we go into the holiday season, winter weather, a new administration in Washington AND possibly higher rates for some time, there are a lot of reasons a homebuyer could be scared, doubtful, deterred or confused. But let's not let the reality of the situation get overlooked. If you were a committed homebuyer before the election and throughout 2016, are you really going to let a payment difference that might be the equivalent of your cell phone bill knock you off course? And take it from someone who knows a thing or two about investing, Warren Buffett: "Buy when there's blood in the streets."
How bad is it? That's up to you. This rate change can be viewed as all negative, or it could be your ticket, at a very small premium, to home ownership, when others succumb to fear and uncertainty.
Make America Great Again,
Executive Loan Advisor
NMLS: 22343 CalBRE: 01297944
Cell: 415-367-5959 Fax: 415-366-1590
1058 Redwood Highway, Frontage Road, Mill Valley, CA 94941
RPM Mortgage, Inc. – NMLS#9472 – Licensed by the Department of Business Oversight under the Residential Mortgage Lending Act. Equal Housing Opportunity.