Your Home Purchasing Power Has Never Been Greater [CHART]

$2,000 Monthly Mortgage Buys You This Much

$2,000 Monthly Mortgage Buys You This Much

Do I really need to add more verbiage to this article? Probably not. The chart speaks for itself. But I’m going to chat it up anyways. Buckle up.

Your home affordability factor is directly driven by mortgage interest rates. Basically, when interest rates rise by 1%, your purchasing power falls by about 10%. Since we haven’t really seen interest rates in quite some time, this concept may be foreign to you.

Let me put it conversely. When interest rates DROP by 1%, your purchase power increases by about 10%. That’s amazing.

Let’s breathe some life into this equation. You meet with your lender today, and get pre-approved for a $500,000 home loan. Cool. From the chart above, that’s going to cost you about $2,000/month (today is 12/12/12, and the going rate is 3.2%). While you go out shopping for homes, you notice that there aren’t too many available. So the process is getting stretched out. Finally, you find a home, get into contract, and it’s time to get your loan finalized. Problem: interest rates have slowly crept up by 1 percent. You think, no problem! it’s only 1 percent higher…we’re still at historic lows.

Houston, we’ve got a problem. That extra 1 percent bump in interest rate just knocked $50,000 dollars off of your approval! You can no longer afford that home, as the loan payment has gone from $2,000/mo up to $2,200/mo. Ouch. Unless you get a 10% raise from your boss, this is going to be a no-go.

Now take another look at the above chart. Remember what the charts looked like that led up to the housing bubble (see chart to the right)? Home prices going up, up and away? They look eerily similar. And as we know, all good things come to end. Or at least, they stop being as good as they were before.

So, before interest rates start their ascent and before home prices rise beyond your reach, you owe it to yourself and family to explore the prospect of home ownership! Why pay your landlords mortgage. Pay for your own! Rent goes up nearly every year. When you buy a home with a 30-year loan, your first payment is exactly the same as your last! ; )

Here’s what to do now: and it’s not difficult at all: Contact a lender and tell him/her that you want to get pre-approved for a home loan. They’ll take it from there. Once your pre-approved, your next step: meet with a Realtor to start looking for your home! It’s more exciting that you can imagine. Stop watching House Hunters, and go do your OWN house hunting! (ok, you can watch House Hunters… it’s rather entertaining and informing).

Looking for a trustworthy lender who can you get the best deal? I don’t do loans, but I know some awesome loan agents that can. Just ask me!

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Should I Refinance My Home?

With mortgage rates at all-time lows, you may be asking “Is now a good time to refinance?”. This short interview from NBC’s The Today Show offers good insight.

Refinancing a mortgage is about more than just “low rates”. For example, there are costs associated with giving a new mortgage and even with the average, 30-year fixed rate mortgage near 4 percent, the costs of a such a move can outweigh the benefits — both in the short- and long-term.

The video originally ran in September when mortgage rates averaged 4.09%. Rates are different today, but the offered advice remains relevant.

Some of the key points raised include :

  • The lowest rates come with the highest costs. Consider a slightly higher-rate option from your bank.
  • Falling home values may make it harder to qualify for a refinance in the future. Your best time to act may be now.
  • If you’re many years into a 30-year loan, you can consider switching to a 15-year mortgage to avoid “resetting” your term.

And, lastly, the interviewee makes a strong point that your refinance should save you enough money to make paying the closing costs “worth it”. Make sure the break-even point on your closing costs versus your monthly savings occurs within a reasonable time frame.

At 4 minutes, the The Today Show video is short, but dense with quality information. For follow-up on whether a refinance makes sense for your situation, be sure to talk with your loan officer.

Freddie Mac : Mortgage Rates Sub-4 Percent

Freddie Mac PMMS average rates

Mortgage rates have dropped past 4 percent.

For the first time in more than 40 years, data from Freddie Mac’s weekly Primary Mortgage Market Survey shows the average 30-year fixed rate mortgage falling below 4 percent, dropping to 3.94 percent nationwide. It’s the lowest average 30-year fixed reading in the survey’s history.

In addition, Freddie Mac shows the 15-year fixed and 5-year ARM making new all-time lows, too, falling to 3.26% and 2.96%, respectively.

It’s a great time to be shopping for a mortgage or buying a home in Fremont. Because mortgage rates are dropping, housing payments are dropping, too. As compared to 8 months ago, for every $100,000 borrowed, homeowners now pay $66 less principal + interest each month.

On a $300,000 mortgage, that’s $71,280 saved in 30 years.

Mortgage rates have been lower for several reasons, some of which include :

  • U.S. economic growth has been slower-than-expected
  • Uncertainty surrounds Greece and the Eurozone
  • The Federal Reserve’s “Operation Twist

In general, demand for mortgage bonds has been high and that’s caused mortgage rates to fall. It should be noted, however, that although the 30-year fixed rate mortgage fell below 4 percent this week, the amount of discount points required to lock that rate rose by 10 basis points, or $100 per $100,000 borrowed.

Homeowners in California are paying bigger fees for these lower rates. If you plan to move within a few years, these fees may wipe out your low-rate savings.

As you shop for a mortgage, pay attention to more than just rates. Low rates are great, but not when they come with high costs. Talk to your loan officer for help with making a plan than works for you.

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