By Greg Perry
Kirkland Realtor
www.425realty.com
Mortgage interest rates are hovering at about their lowest levels for the year. There are many forces at work in our current economy. Weak dollar, high oil, inflation? recession?, liquidity crises. Yet for right now mortgage interest rates are hovering right at 6%.
Did you know the how mortgage interest rates affect affordability in a house purchase?
Basically the Affordability index goes like this:
Every 1% increase in mortgage interest rates equals a 10% decrease in purchasing power.
Here's how that math plays out for a 30 year amortized loan (Per 1,000 borrowed):
A 6% Rate equals a monthly principal and interest factor of $6.00.
A 6.25% rate = a factor of $6.16
A 6.50% rate = a factor of $6.33
A 6.75% rate = a factor of $6.49
A 7.0% rate = a factor of $6.65
A 7.25% rate = a factor of $6.82
A 7.50% rate = a factor of $6.99
A 7.75% rate = a factor of $7.16
An 8.0% rate = a factor of $7.34
If you have a $300,000 loan @ 6% --- $300,000 x $6.00 = $1800.00 P/I Payment
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Now if rates go up 1%, you will experience a 10% drop in affordability.
A $270,000 loan @ 7% ----- $270,000 x $6.65 = $1,795 P/I Payment
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If rates would rise to 8%, here's what it looks like:
A $254,000 loan @ 8% ---- $254,000 x 7.34 = $1,864 P/I Payment
Will mortgage rates rise, fall or remain steady in 2008? Who has the clearest crystal ball?
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