January, 2010 In Your Apartment somewhere in Orange County
You're looking at buying a home in Orange County for $500,000. You have 20% to put down, and you have managed to maintain a good credit score of 690. Your friendly Bank of America loan officer (we'll call him Paul) says today's interest rate for you with good credit is 5%. "Not bad," you say. Of course, you ask the million dollar question: "So, what would my monthly payment be?" You hear Paul tapping his calculator throught the phone. "$2,147 which includes principal and interest." You scratch your chin and think about how much you and your spouse bring in for income. After some rough calculations you say, "Ok, I think between the wife and I we can swing that, buuuuuuut, we want to wait out the market just a little longer. We've been following what's going out there with the economy and the experts are saying home prices will drop another 6% this year. "Ok," Paul says, "call me when you're ready."
March, 2010 Still in Your Apartment somewhere in Orange County
You just heard from a friend that used to do loans that the interest rate jumped up last week. You're mildly interested and the news of a 1% interest rate increase doesn't seem that big of a deal. But, you do know it will probably raise your payments if you were to buy that same house for $500,000 so you give Paul a call. "Hey Paul, it's me...just wondering what interest rates look like today." You hear Paul clicking his mouse over the phone. "Welllllll, it looks like we're at 6% now, little higher than last time." (Which begs the next question): "Paul, what would our payment be on that house on Linberger Street now?" Paul pauses and again that calculator sound..."Um, $2,398 per month." You pull out your own calculator. "That's $251," you hear yourself say out loud. "That's right," Paul confirms. You tell Paul that it's a real bummer and maybe you should have bought that house on Linberger Street a month ago, buuuuuuuut you really think prices will come down and, hey, they came down 2% since December.
June, 2010 STILL in Your Apartment somewhere in Orange County
"Paul," (you're on the phone with good 'ol Paul from Bank of America) "I heard (*gulp*) that the interest rates are at 7%! Is that right?!?" You hear a heavy sigh on the other end of the phone. "Yes, that's correct, even with good credit." And then comes the ominous death knell preceding your next question, "Paul, what does that mean for our monthly payment based on our 20% down on that same house on Linberger Street?" Paul sighs again, "You're looking at $2,661 a month." You do a quick subtraction problem..."That's $514 MORE than if I would have bought in January!!!" Now my wife and I have to find a way to make $514 more to afford the same exact house." Paul, unfortunately can only offer you his apologies.
This illustration was designed by Nic Petrossi, with Prudential California Realty in Brea, CA. For Nic's website click here ----> CLICK HERE