Profile picture for bmcrosby

Interest Rates going up soon?

My wife and I were going to wait until Jan. 2012 to begin our search for our first home. However, with the historically low interest rates, we are considering moving our time frame up.

We originally were going to wait because we wanted to get as close to 20% down as possible. But we are now considering going with a FHA loan in order to get in the market while the rates are still so low.

We both have excellent credit scores and good incomes.

Thoughts?
  • June 28 2011 - US
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Answers (6)

Profile picture for the_country_hick
To answer you exact question ask uncle Ben. Only Bernanke and his fellow federal reserve people have control over interest rates. I expect inflation will come soon and that will cause higher rates. But there is no reason the federal reserve must raise rates at any time. They have hurt savers for at least 2 years with a 0% rate policy.

If my $1,000 a month payment can buy a
$200,000 mortgage at 4.25% paying $983.88 monthly or
$110,000 mortgage at 10%    paying $965.33 monthly or
$_47,000 mortgage at 25%    paying $979.75 monthly explain again how inflation with interest rate changes drive house prices upward as they appear to be driven further down.

Here is what really happens.
At 4.25% a 30 year $100,000 mortgage costs $491.94 a month
At 6.25% a 30 year $100,000 mortgage costs $615.72 a month
At 7.75% a 30 year $100,000 mortgage costs $716.41 a month

That does look like buying at lower interest rates does save money. But does it really make sense? Could we be missing a critical piece such as buying power dropping as interest rates rise?

Lets look at this the other way.
A 30 year $100,000 mortgage costs $491.94 a month at 4.25%.
A 30 year  $80,000 mortgage costs $492.57 a month at 6.25%
A 30 year  $69,000 mortgage costs $494.32 a month at 7.75%




  • June 28 2011
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My crystal ball has a huge crack in it so I cannot really tell you where rates are going in the next six to nine months...up, down or remain the same, would be my best guess.  Forgive my flippancy....

You indicate that you were initially trying to save the 20% for a conventional loan.  How close are you to meeting that goal.  I love FHA loans and think the program offers a great opportunity for people to purchase a home with a minimal down payment.  

However, with the 1% Upfront MI and 1.15% monthly MI, your payment is going to be affected far more that a slight increase in interest rates.  Of course, I don't know where you live, or your full goals and motivations from your question.  But, I would certainly have a mortgage professional run some "what if" scenarios for you to compare the "buy now versus wait" options.  

If you are going to (or could) have the 20% down payment soon be sure to include that option in the analysis.  Do bear in mind, that all agents and mortgage consultants are in the business of selling/buying homes and hawking loans (that is just the facts)...so it is a bit like putting the fox in charge of the hen house.  But, if you are selective you can find a mortgage person who is going to give you all the options available to you and respect you to make the decisions that are right for you.  Best of luck.
  • June 29 2011
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Profile picture for Dunes....

One thing to consider IMO..2009/2010/2011 the rates temporarily went UP at the Beginning of the Year then went down again or there was lots of..."Hurry the Rates are gonna go up" from the Non-Crystal Ball people ;) 


You may wish to look at some historical Rate charts and see if you notice a pattern you may wish to consider
  • June 29 2011
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Profile picture for blue screen exile
The interest rates went up today according to ZMM.

The rates almost were down to 4¼ for one day last week.

The end of Quantitative Easing this summer will have some minor impact; but the rates are still below my prediction from December 2010, so I suspect my predictions through the end of 2011 will still be in the right ballpark, and likely the rates may even be below what I posted.

The Federal Government has indicated they will continue to keep mortgage interest rates artificially low for the near foreseeable future (a couple years or more), and will use borrowed Chinese money that has to be parked in the U.S. economy due to trade imbalances, and U.S. companies intentionally shipping jobs overseas due to Federal Tax policies, wage policies, labor policies and environmental policies  that reward business for having production and labor outside of the U.S. (to enable the sustaining of low interest rates in spite of continuing to spend over 30% more than brought in).
  • June 29 2011
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When to buy has always been a tricky question. If you are renting,..you are getting $0 tax benefit. If you are still at home,..stay there and save 20% (if you think it's realistic).

See Dan's breakdown. It really doesn't matter then you buy. It has to be affordable, period. I love being a homeowner,..even though I am upside down because of the market.
  • June 29 2011
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Profile picture for blue screen exile
"I love being a homeowner,..even though I am upside down because of the market." -

I don't mind being a "home owner" since I have no debt of any kind and completely paid for my house, and can spend money or not spend money on my house as I choose, and because I'm extremely skilled in all aspects of building construction and maintenance, and I keep a supply of spare parts for most of the items that may need attention.

But that doesn't mean one should buy when prices are inflated, nor that there is any "tax benefit" (other than Prop-13 keeps my property taxes from going up more than 2% annually keeping it much lower than if I sold to buy something else).  There is a tremendous tax advantage for those renting as compared to owning, and a even bigger advantage economically for those renting when the landlord is forced to subsidize the living costs due to buying above market when rent rates in the area would not support the cost of the property, maintenance, insurance, and taxes.  Many owners also throw in the utilities as part of the rent as well!


Remember, people who's loans are upside-down have nothing to do with the present market.  It has to do with intentional market misrepresentation and manipulation in 2001 through 2006.  The market is simply correcting for the propaganda and poor government policies that NAR lobbied for.  It is what everyone already anticipated that bothered to pay any attention.
  • June 29 2011
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