Waiting Can Hurt You – 30-Year Mortgage Rates Back Under 5%, But Not For Long.

E. Scott Reckard – RISMEDIA, February 13, 2010—(MCT) –   Average rates for traditional 30-year fixed-rate mortgages have fallen below 5% again, Freddie Mac recently reported.

The giant mortgage buyer’s weekly survey, conducted Monday through Wednesday, pegs the average rate nationally at 4.97%, with 0.7% of the loan balance on average paid in upfront charges, or points. Last week, 30-year rates averaged 5.01%. That continues a trend so far this year in which the average has come in either just above or just below 5%.

The survey asks 125 lenders across the country the rates they are offering to borrowers with good credit and a 20% down payment, or at least 20% equity for those refinancing their home loans.

The approaching end of Federal Reserve purchases of Freddie Mac and Fannie Mae mortgage bonds is expected to result in rate increases later this year. The Mortgage Bankers Association estimates the typical interest rate might rise by half a percentage point. If the average 30-year fixed rate rose a half-point to 5.5%, that would still be unusually low by historical standards.

Nonetheless, such an increase would make any home purchase somewhat more expensive and could put an end to a continuing mini-boom in refinances, which have accounted for about two-thirds of home-loan applications this year.

Let’s get specific here.  I have a Lake Forest, California home buyer who has not been keeping up with my blog or newsletters and is facing this scenario: Let’s say that you are approved for a maximum loan amount of $400,000 to purchase a $500,000 home.  If you wait a few months buy that home, it is likely that its price will go up $10,000 to $510,000. You will now need to find an extra $10,000 to add to your $100K (20%) down-payment. No one likes to see that happen and most of us cannot earn money that quickly.  This isn’t the bad news, though.  If you look at the chart, you will see what happens when the interest rate increases from 5% to 5-1/2%.  In order to keep the same monthly payment of about $2150/month, you will now only qualify for a loan amount of $380,000.  That means that you will require an additional down-payment of $30,000 to purchase this same house.  Your down payment just increased 30% from $100K to $130K. 

Buyers who got used to the idea that ‘waiting’ would keep more of their hard earned money need to catch up with the  market and understand that homes under $600-$650K started increasing in price almost a year ago. “Waiting” is now counter-productive and can cost more and more each day.  If you are looking for homes closer to a million dollars, this is not necessarily the case.  Each market has its own dynamics.  To find out what is happening in your price range, just give me a call. 🙂PS0228

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