Sunday, October 24, 2010

Well written explanation of how interest rates affect home mortgages

Shelia A. Ferrentino, GREEN SFR's Blog
By Shelia A. Ferrentino, GREEN SFR | Agent in 14150

The Cost of Wating

Should I Buy I Buy NOW or WAIT ... Do You Know the cost of Waiting?

If rates start to rise, buyers may find them priced out of the neighborhoods they want to buy in. Below is an example of what a rising rate environment would mean to buyers who are on the fence. 5 years ago, a 30 year fixed rate averaged around 6% and ten years ago, they averaged under 8%.

Let's Look at a Proposed Purchas Price of $100,000 with a 3.5% Down Payment, base loan $96,500

Interest Rate 4.5% 5.0% 5.5% 6.0%

Monthly Pmt $489 $518 $548 $578
(P/I Only)

Monthly $29 $59 $89

Increased Cost $10,440 $21,240 $32,040
Over Term of Loan

To help you better understand what this means to your borrowing power, the same payment of $500 per month loses almost $16,000 in financing ability with a rate increase of just 1.5%

Rate 4.5% 5.0% 5.5% 6.0%
Loan Amount $102,500 $96,500 $91,500 $86,500