Rates, Rates, Rates, It's All About The Rates

Mortgage and Lending with Fairway Independent Mortgage Inc. NMLS #196099

As of April 27, 2012, interest rates on a conventional, 20% down, 30-year mortgage are in the 3.4% range, and headed down to 3.2% by the middle of May. It's only been a few months since rates were bottomed out at 2.75% on a conventional loan (2.25% on government backed loans by FHA and VA).

The difference between 3.2% and 2.70% on a $500,000 conventional loan is $121.12. ($500,000 at 3.2% = $2,162.33. $500,000 at 2.75% = $2,014.21 with an APR of 3.2% and 2.75%). You probably spend more on coffee at Starbucks than $121.12 each month. We're not talking about a catastrophic difference in payment.

Danielle Hale, Chief Economist at realtor.com, explains:

mortgage rates slid for a second week … but we don't expect rates to stay at this level for too long.

Hale continues to say:

For sellers, getting in early optimizes odds of a quick sale at a good price before there's too much competition, but that means acting now In this environment, sellers probably really cant go wrong, and that's especially true in the nations hottest housing markets where homes are selling quickly and getting the greatest number of viewers online.

Housing prices are expected to climb 3% per year over the next ten years due to a shortage of houses for sale. There will be more buyers than houses for buyers to buy. "Is it a bubble?" some people ask. No, it's not a bubble that will burst and send prices tumbling. It's the result of a modest baby boom 1980-1990. Those folks are now in their prime years for buying.

Young married couples are skipping their first-time buyer houses, and going directly to their move-up houses because their combined income combined with low mortgage interest rates supports a higher priced home. We see professionals in their 20's buying large houses.

For example, an attorney making $160,000 married to an IT Specialist making $140,000 adds up to $300,000 household income of $25,000 per month. The payment on an $850,000 house with 20% down is based on a 30-year conventional loan that has a monthly loan payment of $2,767.79 at 3.2%. Add $800 per month for property tax witholding, and $110 per month for hazard insurance, and they get a total PITI payment of $3,677.79. That yields payment equal to 14.71% of their gross monthly income. That's relatively cheap, considering that the average American household spends 29% of their income on housing.

Looking toward the future, experts are looking at the interest rates to rise into the upper 3% range in 2022, then fall back into the lower 3% range in 2023.

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