How Interest Rate Increases Effect Purchasing Power

Its not so much the price, as the Payment

The data and graph below illustrate the enormous net effect to the consumer of mortgage lending rates. In the first series, a fixed loan amount of $300,000 is graphed into an increasing rate from 4.25% to 6.00%. The payment rises from $1,476 per month to $1,799 per month. The second graph shows a fixed payment of $1,475 per month and graphs the declining loan amount to the rising interest rate. A $1,475 monthly payment services (p&i) a $246,062 mortgage at 6.0%.

This analysis points out that it is important for the consumer to understand the rate trend at any given time. It is reasonable to expect interest rates to continue to rise until the current trend either ceases or reverses.

An informed buyer should secure a purchase contract and lock in a rate that has a "float-down" mechanism to allow for a potential rate decrease, while protecting against any further increase.

CLICK ON GRAPH/DATA FOR EXPANDED VIEW

Wells Fargo Hosts 4th Annual Cine-Meeting Event
Brian Buffini Headlines: Building Business in 2011


How to Serve More HomebuyersWho are the post-recession homebuyers of 2011, and how do they view homeownership, money and responsibility? Have the events of the past five years dampened the American dream? Or is a “New Normal” emerging on which to base our business strategies?

Learn what market research and trend analysis tells us we can expect going forward. This year’s dynamic program will help you understand:

1. The attitudes and behaviors of buyers in today’s home purchase market
2. How to work together as legislative change continues to impact the real estate and mortgage lending industries
3. How to go beyond surviving — and thrive in any market
Massachusetts Venues: Burlington, Swansea, Framingham. Follow link and select state.3 choices will display. https://www.wfhmconsumerevents.com/aspx/Events/SelectEventbyGroup.aspx

Interest Rates on the Rise
The 30 Year Fixed Rate continues its steady rise through the month of January and now sits at roughly 1 percent higher than the "bottom" rate of last summer. The Fannie Mae 3o Year Fixed is now at approximately 5.25%. Depending on credit and equity, adjustments will apply. As seen in the FNMA graph of the Fannie Mae Coupon the rate has steadily increased since November, 2010 - having risen a full point since then. (http://www.bloomberg.com/apps/quote?ticker=MTGEFNCL:IND). Most economists had predicted a slower increase over the course of 2011, but market forces have pushed rates up faster than expected. Capital markets have shown large increases, including the US stock market and precious metals. This has forced bond markets to charge lower prices in competition for the same dollars. Lower bond prices equate to a higher interest rate yield to investors.
Locking in mortgage rates asap is advisable. Especially if a "float down" option is offered by the lender, such as Wells Fargo. A float down option offers an "insurance" to the borrower in the event that rates take an unexpected reduction. In this way, the consumer / borrower gets the protection from rising rates, while maintaining the peace of mind that a "float-down" offers.