No Fences!

Are you on “The Fence?”If you are, it looks like you’re not alone. Applications for home loans fell the last few weeks of October as average reported rates for a 30 year fixed rate rose above 5.00% according to the Mortgage Bankers Association of America. The reason most cited for the decline was increasing rates. Many prospective home-buyers may feel that either the rates will fall below 5.00% again or that perhaps a rate over 5.00% is simply not that attractive.

But let’s put this all in perspective. If we look back in time at home loan rates from 1980 through today, we’d see the average monthly reported rate for a 30 year fixed rate loan according to Freddie Mac was 9.07%. While the thought of a rate above 9.00% seems inconceivable today, rates below 7.00% were an abnormality prior to 2002! We’d also like to point out that years ago, it was the norm to pay discount points to obtain a rate that was palatable. Today, a borrower can usually get a great rate and pay no out-of-pocket points or fees!

Let’s also remember why rates are as low as they have been this year. When the Mortgage Backed Securities market did a nose dive, the Federal Reserve stepped in and began to buy up these bonds which sent rates plummeting. However, this buying spree cannot last and when the Fed wraps up its MBS purchase program which is scheduled for March 31, 2010 it is not inconceivable to believe we will see interest rates well above 6.00%. While rates today may appear a little less attractive based on where they had been earlier this year, do not let that cloud your judgment. Any home with a rate in the 5.00% range is a fantastic rate when all things are considered.

Let’s look at some figures for comparison’s sake. If you wanted to borrow $150,000 for 30 years a rate of 5.25% would yield a monthly principal and interest payment of $828. The average interest rate of 9.07% since 1980 would give you a payment of $1214 – nearly $400 higher! And if we really wanted to look back at the average interest rate in 1981 which was 18.45%, your payment would be a whopping $2,316 per month, which is $1488 more per month in case you don’t have a calculator handy. Now consider that today for a similar payment you could borrow $417,000 at 5.25% and still pay $13 less per month!

Admit it. We’ve become spoiled with the best home loan rates we have ever seen. While everyone would love a 30 year fixed rate that starts with the number four, do not let rates off their lows deter you from making a decision that could save you thousands of dollars over the time you may have your next loan in effect.

As for home prices, it’s no secret they are the most affordable they’ve been in years even if the bottom has already been seen (and some would argue that the bottom is still coming). This coupled with the above oasis of attractive interest rates makes now the perfect time to get off that fence and speak with a professional who can assess your situation and help you make a decision that is in your best interest. In order to make the best decision and take advantage of rates that historically will be viewed as the lowest we may see in our lifetime, sooner is better than later to pick up the phone. Regardless of what happens to home prices, we do know that interest rates are on the rise. The Federal Reserve will end their program for purchasing Mortgage Backed Securities next March putting pressure on home loan rates to rise.

So what are you waiting for? The fence is never a comfortable place to sit – the sofa in your own home is much better!

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~Cari