Buying a House? Then Rates Better Not be Greek to You - The Cost of Waiting to Buy

Mortgage and Lending with iLoan - NMLS ID#4474 NMLS 79048

With all of the recent strength in the Twin Cities housing market and Minnesota’s relatively low unemployment rate one might be confused about why we’re experiencing all-time lows (ours are even lower) in mortgage rates since typically the beginning of a recovery is followed by higher interest rates.  But the truth is that the Minnesota story is not the national or global story.  Events on the national and international stage have caused the Federal Reserve and global bond markets to drive US mortgage rates down.  This too will end and will carry a cost to those contemplating a mortgage.

First, some context:

Internationally, the story is Europe.  There are problems in Greece, Spain, Portugal, Italy, Ireland and some would say in France.  As the Euro Zone falls into disarray, fewer investors are interested in Euro denominated assets[1].  They have been selling them and buying up assets perceived to be safer.  These have primarily been US Treasuries and US mortgage backed securities.  As these assets are bought up, their investment yield drops and as their investment yield drops, so too do mortgage interest rates.  Of course as Europe heals, the opposite is true and mortgage rates will undoubtedly rise.

This international problem is disconcerting to the Federal Reserve.  Nationally the housing recovery is more anemic than Minnesota, growth is slow but steady and unemployment remains high.  Depending on one’s perspective, this is either a positive or negative sign but it is indisputably precarious.   To that end, the Federal Reserve is even contemplating an extension of Operation Twist (also known as Quantitative Easing) to extend their efforts of keeping rates low (this has played the largest role in keeping mortgage rates low over the last few years).  Even despite this, Ben Bernanke, by stating to congress that “monetary policy is not a panacea” has implied that there’s only so much that can be done without congress’ help.  Yeah, like that’s going to happen!  Extending Operation Twist could extend this period of low interest rates but it’s only a postponement of the inevitable rise in interest rates.

The Mortgage Bankers Association (the MBA) predicts that rates will end 2012 at 4.2% and 2013 at 4.7% (that’s a full percent over today’s rate).  One can only assume that the MBA foresees continued anemic housing growth (but growth nonetheless), steady GDP growth and continued modest improvements with unemployment (overall).  They may also be suggesting that Europe will slowly sort their mess out.  Who can say?  In any event, this begs the question, “What is the cost of waiting until fall of 2013 to buy a home strictly from a mortgage perspective?

Now, the cost-benefit analysis:

Let’s take an example of a 5% down purchase on a median priced home in the Twin Cities 13 county metro area.  Since the current median price stands at $163,000, the loan amount would be $154,850.  Using the interest rate from this week’s Weekly Primary Mortgage Market Survey® from Freddie Mac of 3.71% on a 30 year fixed rate mortgage, we’ll compare it to the Mortgage Bankers Associations Projected 4th quarter rate of 2013 of 4.7%.  We’ll compare the combined monthly payment and amortization savings over periods of 5, 7, 10, and 15 years in the following chart:

The Cost of Waiting to Buy a Home

The lower the interest rate, the faster the principal balance gets paid down on the front end of an amortization schedule so it’s important to take this savings into consideration.  Of course if one’s loan amount is higher or lower the savings would be greater or less respectively.  Lastly, these aren’t assumptions and numbers that I’ve come up with in my mom’s basement.  These are highly cited, credible and relied upon sources and assumptions.

Finally, a word for homebuyers:

This has been meant to put the market for current mortgage rates into context, evaluate projections and calculate possible costs of waiting.  Always remember that while these are important considerations, buying a home is only partially an investment but is largely personal.  While it is not unwise to take these calculations into your decision making process, always remember that you live once and should always endeavor to buy what you want, when you want it and for your personal reasons.

Happy house hunting!


[1]Germany introduced covered bonds, known as Pfandbriefe, in 1770 to finance public works projects. Since then, 24 other countries in Europe have adopted the covered bond structure, each with its own unique laws. In Spain, for example, covered bonds backed by mortgages, known as Cédulas Hipotecarias, were created by a special law in 1981, while in France, covered bonds, known as obligations foncières, can be traced as far back as 1852, with the establishment of the first mortgage bank, Credit Foncier de France. All countries with covered bond laws now allow for bonds backed by mortgages, while only a few allow covered bonds backed by public sector loans: Germany, France, Austria and Spain. In Denmark and Germany, covered bonds may also be secured by ship loans. - Source PIMCO


Posted by

Charles Dailey - Branch Manager, Loan Officer, Certified Military Housing Specialist - iLoan - NMLS ID# 79048 -  612.234.7283 -

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Richard and Jean Murphy
Harborview Properties - Portland, ME
(207) 712-4796

Very informative, thank you.

Jun 17, 2012 10:07 AM #1
Paula McDonald
Magnolia Realty ~ Granbury - Granbury, TX
Magnolia Realty ~ Granbury, TX 936-203-0279

You bet and right on.  I have been having this conversation with many of my buyers.

Jun 17, 2012 10:14 AM #2
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

You raise a lot of good points.  I think things are chaning in many markets and some buyers are going to loose out on these historically low interest rates if they continue to wait.

Jun 17, 2012 11:47 AM #3
Danny Dietl - Minneapolis, MN
Buy, Sell, Lease -

I think you have a bright future, Charles. 

Jun 17, 2012 12:18 PM #4
Donald Reich
Prudential Centennial - New Rochelle, NY

There is no question, now is the BEST time to buy! Prices are down, and interest rates are at all time lows (they can't get much lower).



Jun 17, 2012 02:52 PM #5
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Charles, I liked the table you used to show the 'cost of waiting' - and when the buyers see the numbers, they reach quickly!

Jun 17, 2012 03:01 PM #6
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

Charles - When I got into this business in December of 1981, interest rates were 18%.  I never in a million years, dreamed we would have the amazing interest rates of today.  For those capable of buying homes, the window of opportunity provided for these rates remains open, but it can't last forever!  I love your table.  It's the first one of its kind I've seen!

Jun 17, 2012 06:05 PM #7
Wayne Jackson
Lakeshore Realty 208-714-4109 - Hayden, ID
North Idaho Realtor, Serving Coeur dnullAlene and Hayden Lake

Charles, Great topic. Right now is a once in a lifetime opportunity to buy at low interest rates..

Jun 18, 2012 12:26 AM #8
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Great analysis!  There is no doubt ... lower interest rates mean hard dollar savings.  But as you point out, interest rates may not divulge the whole story, nor the best ending.  Exactly why clients need to seek, find, and work with an experienced mortgage lender.  Only through a thorough consultation and analysis of the potential buyer's needs can the best personal financial scenario be found.  That may include the lowers interest rate .. and it may not ...

Again, well written!


Jun 18, 2012 01:45 AM #9
Pete Xavier with
Investments to Luxury - Pacific Palisades, CA
Outstanding Agent Referrals-Nationwide

"Rates Better Not be Greek to You"

Great Line!

Jun 18, 2012 04:09 AM #10
Charles Dailey
iLoan - NMLS ID#4474 - Saint Paul, MN

Thanks everyone.  I have to be honest, when I posted this and noted that I had included a footnote (for god's sake) about the history of European bonds, I was pretty sure nobody would read this.  Thanks for the surprise!

Jun 18, 2012 04:35 AM #11
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Ya snooze ya loose . . . the amazing part of the % rate and low prices shouldn't be ignored can make home buyer, for some, a good thing right now.  Thanks for the details in your explanation and chart.

Jun 18, 2012 06:15 AM #12
Justin Dibbs
Pearson Smith Realty - Ashburn, VA
REALTOR® - Ashburn Virginia Homes for Sale

Right on.  Way to spread the message to all the homebuyers currently shopping out there.  Footnote...I'm not surprised ;-)

Jun 19, 2012 01:44 AM #13
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