I need my quick fix !!! Please pass me that 4.5% rate over here NOW !!!

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Mortgage quick fix.


                     information overload...

In the last few days, I have seen several blogs talking about the 4.5% rate.  Fred Chamberlin  wrote this post. Could Mortgage Interest Rates Drop to 4.5% with Treasury Intervention?   He put some good information out there which ended up with some thought provoking comments. But are lower rates just a quick fix???    


I have read all the comments and I am a little disturbed at the lack of knowledge and or the lack of common sense that some of us show. I feel that there is something lacking in these comments, lacking in today's society, and in our profession of lending & real estate. Yes, this is my opinion... but I want to share a little thought.


Just for the record, before I move forward. Some have said that I come across harsh, or like a know-it-all with a twist of ego. I will admit, I have come across harsh sometimes in comments, but for reason.  It's time to wake up.  I take my job seriously...Not saying that you don't.  I have a lot of pride in what I do... and lots of passion.  And I truly believe in taking that extra time, educating the consumer with more than opinion that just blows in the wind. We need to tell the consumer what they should hear, instead of what they want to hear. I want real thought with my comments and stats. The kind of talk that I am talking about is hard core real estate talkLenn Harely  is very good at this and she tells it like it is. Chalk full of real information and not fluff, allowing the reader to make up their own conclusions and not false thinking because it was just a happy blog with good news.  Today she wrote, The Housing industry is in a recession, what are you going to do about it.   Don't get me wrong, I despise the doom and gloom type of blogs, but we do need specific details with a positive twist.. back to the issue at hand.




Watch out for the interest rate trap.

Watch out for the trap..... The credit trap aka the mortgage trap aka the RATE TRAP !!!   

Here is my thinking on this. More than half the comments stated :

  • Hurray for lower rates. 4.5% would be awesome.
  • Wow, business will pick up. Those on the fence should get off.
  • This should jump start the economy.    


Yes, I will admit, when hearing a low rate, that sells. But haven't rates been low for the last 3 to 5 years?  Didn't people buy with 12% or 18% rates back in the 80's ??

Again.. payment should be key. Rate just makes payment. You live with the payment, not the rate. 



             Opinion or Facts……

Lower interest rates and a higger house.

Here is my issue with everything that I mentioned above. To many people focus on rate and loan officers in general don't help with this. This post is about 1 1/2 years old, but the basic concept is the same.  Rate vs Payment 

When I first speak to a potential client, my first question usually is, "what payment are you comfortable with?"  Not, how much house do you want....  how is your credit.... what kind of money do you make. I really do stress payment over rate. Yes, a lower rate lowers your payment or increases your purchase amount. But as a loan officer, we not only need to educate, but set reasonable expectations.   Here are my top 6 questions that I ask any borrower.



Let's take a quick look at today's rate vs lower rates and payments......


Mortgage Amount





Interest Rate








P & I Payment







Difference in Payment


+ $38.00



 +$  73.00

As you can see, going from 6.0% to 4.5%, you would save $111.00.  Now, it's a savings, but nothing spectacular when you say that you are going to lower the rate 1 1/2%. And keep in mind, if this was a refinance, now you have costs that you would add onto the loan amount, which would reduce your savings.


Mortgage Amount





Interest Rate








P & I Payment







Difference in Payment


+ $64.00




As we know, real estate is local. In some parts of the country, many people don't see purchase amounts above $100,000, or $150,000.  In some areas, you will see an average of $250,000 to $400,000.

As you can see, the higher the loan amount, the greater the savings when the rate is lower. If you go from 6% to 5.5%, you save $64.00 a month. But if you go from 6% to 4.5%, you would save $186.00 per month. But look at this... if you went from 5.5% to 4.5%, you would $122.00 per month.



Summary :  Keep in mind, these are just rate comparisons, not to include closing costs, points, or lender fees. It also doesn't take in consideration of pricing hits if you are putting 5% or 10% down with credit scores under 680 on a conventional loan. As many of us know, FHA loans don't have pricing hits until you get under a 620 score.  Overall, these are just examples without profit margins to make my points.

Keep this in mind..... just because they said that rates would be lowered to 4.5%, you don't know at what cost to the consumer. So again, hence why I consider many of these blogs that talked about lower rates to 4.5%, don't mention information such as what was discussed in this post. It's almost like misinformation. How can you truly gauge the difference of a lower rate to what rates are now, until you know what it will cost?  What will this cost us long term? Just food for thought...

One last thing.....  look at it this way... >> This is a 3 part - food for thought...

1. If $200 extra in your pocket was going to make or break the deal for you. Now by saying, I will have something left over... ouch. You should have more left over than that. You can't survive, especially in today's market with just $200 extra in your pocket. Maybe if you are single, but not if you have a family. Things happen last minute. Hence why I sell payment and not rate.

2. If you told me that you didn't want to go over a payment of $2,000. I tell you that you could qualify for $300,000 and you are shocked at such a high purchase price. Then I tell you that your rate is 20%...  you say, no %$#$ way.  Okay, but it fell into what you wanted and so did the house. Again people, rate is just a thought stuck in the head. We want things at a discount, it makes us feel happy. We feel like we got a great deal. That comes with shopping at the store. Buying a home is one of your biggest investments ever. You need to focus on payment, not rate.

3. Here is one another reason for my fear of lower rates. It could be a part of this.... inflation vs deflation, which could lead us into a great depression. And that is no joke.

4. Lastly, even though much of this post was about payment, the underlying message is that lowering rates now, could hurt our economy in the long haul. There are many reasons for this. But basically because we will be paying for this ourselves, even though the gov't will be in charge of this. Robert Ashby wrote about this in his 4.5% rate blog, which is a must read.


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Re-Blogged 2 times:

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Sonja Babic
Sonja Babic/PRIME Realty NC, LLC - New Bern, NC
New Bern NC, PRIME Realty NC, LLC


Great post. Rate is only one part of the deal and even as we all need a fix right now we should remain realistic. have a great and successful week!

Dec 08, 2008 12:52 AM #26
Tim Bradley
Contour Investment Properties - Jackson Hole, WY
Commercial Real Estate Expert in Jackson Hole, WY

Sound advice Jeff and well put. BTW, your photo links are broken.

Dec 08, 2008 01:47 AM #27
Barb Van Stensel
Chicago, IL

Jeff, you have a point, actually a strong point.  I read your column that you posted, thank you.  You see things that most don't and I am greatful that you share and rattle some cages opr turn the lights on.  Right now we are in serious trouble.  I see it with food fluctuating, gas shooting up to $4.50/gallon and people riding the bus and then disucssions of gas going down to $1/gallon.  We are in big trouble.  People are careful what they buy.  I actually watch if people are using credit to buy their food and watch how many people are going into Starbucks.  I have a building that is in multiple offers right now and I have solid offer prices and ones that I call "scavenger offers". 

My apologies if I didn't artciulate on my former post but I heard every word you said and then got on my own soapbox on your post. 

The Big 3 being in trouble is a concern for me.  I'm concerned that I can go into Dominick's here in Chicago and see food prices jump up $1.50 in the last couple weeks but head on over to Target and their pricing is still stable and not increasing.  We can spiral down and fast.  I was in DC last year around September and I spoke and told "the boys" that if we don't make the right decisions, based upon a solid solution understanding the results of these decisions instead of how much money they would make off of this mess, they won't have a resume to polish up because we will no longer be flying the American flag.   Other countries own more of America then we as Americans do.  It will be costly to get our land back.  The whole thing is a mess.  We know that.  We are in serious trouble - and its not like anything before.  If this continues, we will be worst then the Great Depression.  I actually believe that we are there and  depending on how the economy is handled, the laws are made and if they don't rewrite or amend the Constitution of the United States to reflect how we have been acting this last decade and reverse some of those actions, we stand a chance.  But there are alot of what ifs.  I scared that free enterprise will be taken away.  It is almost there but not in writing.  Oops, soapbox again. 



Dec 08, 2008 06:44 AM #28
Beth Forbes
The mortgage help you want when you need it. - Center Valley, PA
Your 24/7 loan officer

Hey Jeff- Let me know when those 4.5% rates are available! I'll make a bundle. Well really, maybe not. That would only be if this applied to refinances but I don't think it does. The buyers I have in my pipeline are qualified and ready to buy at 6.5%, just looking for that perfect house. Maybe the savings would push them to look at a more expensive house but I doubt it, more likely they'll stay in the same price range and pocket the "savings". The larger point is that this will be GOVERNMENT subsidized!!! That's right, just add on to that deficit. Why the heck not...

Dec 08, 2008 08:19 AM #29
Earl Johnson
Fort Lauderdale, FL

A key component to the lower interest rate is marrying it to a modification of the loan amount and a standard 31/43 DTI.  We are now seeing banks lowering the amount owed on a first to adhere to FHA standards and writing a second note at a 0.0% rate in an effort to recoup as much funds as possible and avoid foreclosure.  Ideally we want for the second to be forgiven completely with a strong record (2-5 years) of making consistant payments. 

While this is not a popular solution in some circles, it is in everyones interest that programs like this are utilized by all banks to address the immediate crisis.  Saving the customer relationship should always be the focus and onceyou have a customer making payments in the longterm (5-7 years) you will recoup cost and make a profit.

Dec 08, 2008 08:54 AM #30
Ed & Cindy Knight
Rooms Realty - Shelby Township, MI

Jeff you're right, when I 1st started rates were 13.5, folks were still buying and it was about monthly payment. Somewhere we got all messed up and not sure who to blame. Honestly, here in Michigan the 4.5% could help plenty but most are really upside down and have been cut back on income. So not helping much.

BTW I like the Lenn attitude

Dec 08, 2008 09:04 AM #31
Tracy Saunders
Chase International - Incline Village, NV

Exelletn post...I explain the same thing to my clients and recently had a client decide not to buy as a result of this same conversation.  I don't want to be the one to put someone into a house they can not afford...isn't that how we got in this mess.  I am a Professional Realtor and as such it IS my job to counsel and refer to professionals. 

Dec 08, 2008 09:08 AM #32

Hey Jeff - The 4.5% rate is something thats being considered and not reality yet. I've also heard that it may only apply to new construction (bailout for the builders). Besides no inteligent person would buy a house in this market  even at 4.5% when most major economist including Nouriel Roubini and Paul Krugman are saying that housing prices are going to decline another 10-20% before we bottom out. For those who don't know who these two economist are you should check out their blogs. They've been calling it correct for the last two years. Jeff you are dead on with another great post. It's the payment that matters to people not the rate. It amazes me how people get so hung up on interest rates that they lose sight of whats important (closing costs, etc.)People are astounded when they see what little difference a .25 .50 or even a whole point makes in a payment. It's the loan amt that has the greatest effect as in your example above. Again thanks for the great post and keep up the good work!

Dec 08, 2008 09:10 AM #33
Paul Francis
Francis Group Real Estate - Las Vegas, NV
Las Vegas Real Estate Agent - Summerlin Homes

Excellent post... Have we not already had enough of the artificial inflation of home prices from policies created to avoid the last recession?

For some reason the cost of this program to bring you the quick fix (aprox. $1 Trillion) seems to always be left out??

We have more of an ability to even buy a home problem then a lending problem with all of the layoffs, foreclosures and Bankruptcies that have easily taken a million or two people out of the market no matter what the interest rate is.

On another note.. I'll certainly take advantage of the program depending on what strings are attached if it's going to be offered but I'm not going to buy just anything....


Dec 08, 2008 09:46 AM #34
Lyn Sims and the Blog Dog
Streamwood, Elgin IL Real Estate - RE/MAX Suburban - Bartlett, IL

Well I don't know - at one point I think that interest rates based on alot of factors should be lower than they are now YES?  Is 4.5% the number to jump start the housing market?  Don't know - they did this once before and the market was still stalled out for 6 months.  I think that portion might have to do with overall consumer confidence.  My 2cents.

As usual good post with alot to think about.

Dec 08, 2008 10:23 AM #35
Jim Dvorovy
Cutler Real Estate - Canton, OH
REALTOR - Canton Ohio Real Estate

Each state is different. In my area, it is all about jobs. Our nation will have a tough time making a go of it if the only jobs out there are minimum wage and we all sell our fast food to one another. The debate about interest rates might be interesting to discuss, but our country is facing some serious issues on many fronts, and they all can't be cured by the government printing more money.

The graphics are disturbing and detract from the post instead of enhancing it.

Dec 08, 2008 11:12 AM #36
Vickie Nagy
Coldwell Banker Residential Real Estate - Palm Springs, CA
Vickie Jean the Palm Springs Condo Queen

Ah Ha. Someone has done their homework. Thanks for sharing. You're right. The numbers don't seem to make a huge difference.

Dec 08, 2008 12:28 PM #38
Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Jeff, you?  Harsh?  You can get by with it by being smart.  Lots of great information.  And buyers need to pay attention to their payment and the value of the house they are buying.

Dec 08, 2008 02:16 PM #39
David Lang
The Lang Team - Keller Williams Realty - Fort Myers, FL
Taking the stress out of buying and selling.

Jeff, I wish they had never even started talking about the possible 4.50% rate; all it has done is take away some of the confidence about how great rates are right now in the 5's!  Heck, they were "historically" great rates in the 6's.  Now though I have buyers who ask about the possible 4.50% rates and are a little disappointed when I inform them that this is just a proposal.

Dec 08, 2008 11:41 PM #40
Dave Henson
Zimmerman Realty - Lakeview, OH

Jeff, It doesn't matter whether it's 6% or 4.5%. Or whether you save 200.00 month on a mortgage payment. Bottom line is there are so many individuals who are not accountable and they will default regardless of payment or rate. Besides that, I don't think you are harsh enough. What happened to the days when buyers such as my wife and I were required to have 10% downpayment before banks would even talk to you. We purchased our first home during the high rates of the 80's and yes monthly payment amount did matter, but we also had hard earned equity. Now a days it's just gimme gimme gimme.

Dec 09, 2008 01:54 AM #41
Karen Cox
Landmark Professional Mortgage Company - Salem, OR

What can I add, it has all been said.  I think those of us in the mortgage industry have a much better insight than most people on the state of things. Even if by some chance that rates do get to 4.5%, the nature of man is that they will not save, they will not be conservative in their spending, they will just buy more!!  that is what got most of them in this trouble in the first place. Buying too much house or too many toys to keep up with the neighbors.  America needs to focus on getting back to basics with our spending habits. We may all need to learn the hard way as our grandparents and great grandparents did during the Great Depression!

Dec 09, 2008 04:54 AM #42
Roger Harmon
Berkshire Hathaway Home Services Sundial Realty - Fridley, MN
"building great neighborhoods one home at a time"

Interesting stuff. I hate to admit that I skillfully started in real estate in 1981 with rates at 13% and watched as they went to 18% so interest rates aren't the real issue. It's the repayment of mortgages that is the problem.

If govt or anyone else  wants to fix this market they need to reduce the glut of inventory coming on the market which drives prices through the floor. The problem with a 4.5% rate is the only people who will qualify for loans probably already have a house so they'll just refinance and sock some more money away. REALITY CHECK (How many people who should have bought a house in the past 5 years DIDN'T buy) So what we have left are a few new divorced types as buyers and a few young couples or singles  who have just gotten into the market. This number is hardly enough to make much of a dent in our glut of housing.

What needs to be done is restructuring mortgages for those who CAN make a house payment in thier current location. We  just, as taxpayers, bailed out a whole bunch of people who made bad loans and are now throwing SOME people out of housing they could stay in if THEY could get 4.5% financing. Remember these people who leave these properties dont disappear they reappear as indigents or overcrowded neighbors when they lose thier homes.

While I would love to refi my house at 4.5% I can assure you that my refin would not save the housing market but rather would just cause another mortgage backed security to be partially redeemed.



Dec 10, 2008 08:15 AM #43
Karl Christen
Independent Leadership & Financial Fitness Consultant - Pleasant Grove, UT

Jeff - Great post as usual.  Your 100% accurate in regards to your statement that it should never be "rate" as the reason to buy or not buy.  The real question is "can you do it comfortably".

As for deflation, there is a real risk right now, but I'm not so sure I agree that we're heading that direction in the long term.  The Federal Reserve is printing money faster then we can really spend it, and boy are they pushing it out the door in a hurry.  Hurray that they told the automakers no, but they won't tell Wall Street no, and that's party of the problem.

Now the tax payer is going to be buying Mortgage Backed Securities.  Again we fail to address the real issue, OVER SUPPLY IN THE MARKET, and we again want to focus on attempting to stimulate something that is over stimulated. It's like giving a patient who over dosed on Crack Cocaine and extra shot of speed!  It  may get the heart pumping for a little while, but it's going to just collapse again.  The real scrary thing is what the Fed is doing to the money supply.  Pretty soon the Glenn Beck's of the world are going to be correct, we are going to be in such a deep hole that National Bankruptcy will be the only answer.  I just hope I have some currency in the world at that time that is going to have value.  That's not doom and gloom, it's unfortunately reality.


Dec 11, 2008 07:10 PM #44


Question regarding your math, for a $200K loan at 6% the interest payment would be ~$1000/mo. for the sake of the argument.  For a 4.5% rate it would be 3/4ths of that, i.e. ~$750/mo.

these numbers don't agree with your post.  What am I missing here?

Dec 17, 2008 10:06 AM #45
Ed Vaughan




Qualified First Time Home Buyers and Current Home Owners refinance with new 4.5% fixed

rate mortgages would stimulate the economy like nothing else.

Feb 23, 2009 06:34 AM #46
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