Tuesday, September 8, 2009

Interest Rate Changes Can Be Costly.

Interest Rate Changes Can Be Costly. I was recently sitting down with a client and we were strategizing about different scenarios that could help them get the most amount of home for their money. As I mentioned the other day in this blog, interest rates recently took a surprising drop. So we calculated how much money these buyers would save or how much it would cost them if rates go back up again. For a $500,000 mortgage at 4.875% (30 year fixed), their monthly mortgage would be $2,646. If the rate goes up to 5.875%, their monthly payment would go up to $2,958. That one percentage point in interest rate would cost/save them 12% on their monthly mortgage. With the amount of money the Fed has pumped into the economy, I would not be surprised to see 6.25% mortgage rates within 12 months to head off runaway inflation (just my opinion). Let’s look at what that would do to this buyer’s monthly payment. It would cost them $3,079 a month. That’s a 16% increase from today. We know we’ve already hit bottom in terms of prices in this area. Here’s my point. Some buyers are still waiting to buy. From this point forward, I believe waiting will come with a cost. If you know me at all, you know that I don’t typically go around spreading wild predictions just to cause people to do something I want them to do. Actually, it’s quite the opposite. I feel a sense of obligation to anyone who accepts my advice and I don’t take that level of trust lightly. That’s why I don’t make these kinds of predictions unless I have a factual sense of cause and effect. If there’s someone you know who’s been waiting to buy, please share this with them. . Or if you prefer, I can sit down with them and go through the details. Two years from now they will thank you for it. -Gary Nobile, Realtor (408) 247-4029 http://www.garynobile.com/

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