An interesting thing about interest rates and value…

Sasha C. Farmer Realtor — Wed, 23 Dec 2009 13:00:39 +0000

I have spoken to many of my clients about this previously, when saying that often a 1/4 point increase in interest rate can result in a higher monthly mortgage payment than would a 5% increase in sales price. What this means, is that the buyers out there who are waiting for the market to “hit bottom” may end up finding that their dream home becomes more expensive, even as the price drops. Marc Roth, writing for BusinessWeek sums it up nicely (emphasis added);

So, what can we learn from the historical trends and numbers?

First, rates have far further to move upward than downward; for more than 30 years, 7% was the low and 18% the high. The norm was 9% in the 1970s, 10% in the mid-1980s through the early 1990s, 7% to 8% for much of the 1990s, and 6% only over the last handful of years.

Second, the last time the long-term trends reversed from low to high, it took more than 20 years (1970 to 1992) for the rate to get back to where it was, and 30 years to actually start trending below the 1970 low.

Finally, the most important lesson is to understand the actual financial impact the rate has on the cost of purchasing and paying off a home.

Every quarter-point change in interest rates is equivalent to approximately $6,000 for every $100,000 borrowed over the course of a 30-year fixed. While different in each region, for the sake of simplicity, let’s assume that the average person is putting $40,000 down and borrowing $200,000 to pay the price of a typical home nationwide. Thus, over the course of the life of the loan, each quarter-point move up in interest rates will cost that buyer $12,000.

[From If You Don't Buy a House Now, You're Stupid or Broke - BusinessWeek]

Don’t just look at list prices when trying to determine the cost of your home- your interest rate may actually have a significantly higher impact.

If you could use a recommendation to a good local lender, who can walk you through all of the stipulations of your financing and help you determine if now is the right time for you to buy, please don’t hesitate to call.

[Image courtesy of http://www.tutor2u.net/blog/files/interest_rates.gif]

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An interesting thing about interest rates and value…