This is a interest article which has some potential to affect Canada. I've know for a while that there was another group of sub-prime mortgage, largely commercial, due this year. I am positive we won't see last years reaction. But .... The news media will have a ball with this news.
I recently shared an article about how mortgage interest rates may slowly begin to rise in 2nd Quarter of 2010 (beginning April) because $1.25 trillion dollars of Mortgage-Backed securities (MBS) held by the Federal Government is set to expire on 3/31/2010. For about 18 months, the "lowest" of the low interest rates that we have been accustomed to has been kept low as part of the Federal Government's stimulus plan to sustain the housing industry and with its other first time home buyer and repeat buyer tax credit incentives.
The first time home buyers in the last 18 months has never seen interest rates much higher in the mid-5 percentage points. To introduce to them that when the interest rates may go up over 6% may probably make them very, very uneasy - almost to the point of freaking out. Most of the homeowners who could possibly re-finance to take advantage of these lowest interest rates have also done that and if you are considering it, but haven't had the opportunity to participate, your window of opportunity is NOW.
There are plans for the Federal Government is going to evaluate the situation once the MBS expires at the end of March. If and when the "higher" interest rates create chaos in the housing market, the government may plan to evaluate the situation then. Federal Chairman Ben Bernanke at this point (early February) indicated that there are no plans to extend the plan.
So, how does higher interest rates affect you personally?
Higher interest rates affect any home buyers who intend to pursue a loan to obtain housing. The interest rates may potentially go up to 6% or higher, which means:
- Your buying power is less (More money goes to payment due to higher interest rates means you buy less house).
- Your qualifying power is less (Same as above. The lender evaluates your Debt to Income ratio. As your new monthly payment due to interest rates becomes higher, hence your Debt to Income ratio becomes larger. In order for the Debt to Income ratio to maintain the same, the Debt must be "smaller". Ultimately, your monthly payment would be "smaller").
In the grand scheme of things, a 6% interest rate is still spectacular and very attractive. However, it takes some educating to get to the "new comfort level" since the past 18 months. Please read Lenn Harley's article as she charts the historical mortgage interest rates from 1983 to 2009.
On a $200K loan, your Principal + Interest payment (not including your Property Taxes and Insurance) is $1,073 for a 5% 30-year note.
On a $200K loan, your Principal + Interest payment (not including your Property Taxes and Insurance) is $1,199 for a 6% 30-year note.
The difference of $126 per month can be pretty substantial for some household budgets.
If you work it backwards, a $126 per month difference in monthly payment on a 5% 30-year note would have bought you $23,500 more in "house". This "$23K" may not seem significant on a more expensive home. However, it would make a difference in the type of home you buy, the features you would get in the house at the "lower" price ranges.
So, it's your call to determine if NOW is YOUR WINDOW of OPPORTUNITY.
Even if you read this article, and you are a home seller, understanding your buyers' uphill battle will help you plan out your sale better. You would open your home up for more buyers in a lower interest rate environment. Most sellers sell and turn around to buy. Most of them typically buy in the "higher" price ranges than the one they sell, so again this Window of OPPORTUNITY works for everyone.
Your call - if it's your window of opportunity NOW.... And if you think it is, be sure you're out more often these days with your buyer's agent. Get more viewings done and get your interest rates locked in sooner rather than later. As we've always said in the housing business - we know interest rates have been exceptionally low. The "chances" of it going even lower don't look as promising, but the "chances" of it going up from here is just pretty real.
Pick up that phone and make a showing appointment with your buyer's agent today.
Your Window of OPPORTUNITY is NOW:
- Historically low interest rates
- First-time home buyer tax credit $8,000 - that's some new furniture for your new home
- Repeat-buyer tax credit $6,500 - that will help with your move, or new furniture you could buy
RE-BLOG THIS and GET THE MESSAGE OUT!!!
- Mortgage interest rates may hike in 2nd Quarter of 2010
- When to Lock In Rates?
- New Standardized Good Faith Estimate for 2010
- Time Value of Money in Closing Costs
- Two Halves Make a Full Loan Approval
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Copyright © 2010 by Loreena Yeo (3:16 team REALTY)
Originally posted on Your Window of Opportunity is NOW in 2010.