received a mortgage rate update via email yesterday from a local lender. The rates were as good as I've ever seen. Since I'm not in the business of originating loans, we won't get into the specifics here.
Please we aware that loan rates are always subject to an applicant's credit worthiness, and that rates are always subject to change, at any moment, without notice. And, obviously, no rate applies to all lenders. There are a lot of dynamic forces here, folks. Consult your lender for your specific loan scenario.
With the disclaimers out of the way....
A lot of times, we focus so much on price, that we don't give adequate attention to interest rates. A rising interest rate can easily offset any potential advantage a buyer hopes to see via declining prices.
For example, again speaking in the most general terms, let's take a 4.875 percent interest rate, and apply it to a generic home currently listed for $300,000. Visiting one my favorite sites, DinkyTown, I am able to utilize that 4.875 rate and get an estimated principal and interest payment of $1587 per month. That would not include insurance or taxes. That's just P&I, but it gives us general numbers and allows us to make our illustration.
Let's say that $270,000 is your "magic number" to buy that house. So, you wait a couple of weeks, to see if the seller will move any more on the price. In the meantime, the interest rate which might apply to you, Mr. and Mrs. Generic No-Name Buyer, rises to 5.875 percent, still a very good rate by historic standards. And trust me when I say we have seen some dramatic rate swings in recent weeks, along with the roiling of the economy.
In the meantime, the price of the home is lowered 10 percent (not an insignificant reduction, by the way) to $270,000. You call your Realtor, and make your move. You purchase for $270,000. You lock in your rate at 5.875 percent. What did you gain by waiting? it may seem that you gained $30,000, but you actually saved nothing. You actually lost $10 per month with the increased rate, and in this generic scenario would be paying an estimated $1,597 per month in principal and interest, because of the new rate.
Your better case scenario might have been, working very closely with your Realtor, to offer your "magic number" a couple of weeks earlier. Maybe the seller was ready to deal at that point. Maybe you could have bought the house at $270,000, with a 4.875 percent rate, which would have been an estimated $1,428 in principal and interest. In this scenario, you're looking at saving $160 a month.
This is where your Realtor comes into play. Communicate with him or her. Formulate a strategy. Make sure he or she knows what you're thinking. Be on the same page. There is legitimate value and money to be made and saved by working closely with your Realtor.
The depreciating price situation is well-documented. Just about every market in the country has taken a hit over the past year or so.
If Congress acts, and rates on 30-year fixed mortgages do dip below 5 percent, this could truly be an historic, Perfect Storm of opportunity for buyers.
The New York Times recently ran an article referring to this as a porential Golden Age of real estate for first-time buyers.
If this is your time to buy a home, make sure you are lined up, prepared, and ready to go when the time comes.
Have a great day!!!