A buyer should be more concerned about the COST of a home rather than the PRICE. Price obviously is a component of cost. However, unless you buy all-cash, you must also be concerned about the financing of the purchase. The price and the financing together determine the cost of a home. Today, we want to look at only the financing piece.
An opportunity exists today because of recent government involvement; an opportunity that may never again be available in our lifetimes. There has been much discussion about what role the federal government should have in supporting homeownership. We will leave our opinions on the debate for another time. However, we want to alert you to two advantages available to a purchaser today that may disappear in the future:
* Historically low interest rates
* The ability to lock in these rates for thirty years
* The ability to lock in these rates for thirty years
Interest Rates
Because of the financial crisis, the government stepped in and instituted a series of programs which pushed mortgage interest rates to historic lows. If we look at 30 year mortgage interest rates before and after government intervention we see the impact these programs had (see chart below).
According to Freddie Mac, from 2006 to the start of the financial crisis (the fall of 2008), the average rate was 6.29%. Since then, the average rate has been 4.92%.
A purchaser can still get a 30 year-fixed-rate-mortgage at approximately 5%. However, interest rates this low may soon disappear. The government has questioned its role in supporting homeownership.
The day of a 5% rate seem to be coming to an end.
We must also realize that having the ability to lock-in a rate for 30 years may soon be a thing of the past.
There are a growing number of people who think that our mortgage industry should imitate those of other industrial countries around the world. If we do start limiting government support for the mortgage process, the 30-year-fixed-rate mortgage may disappear. Other countries, like Canada, only allow a purchaser to lock in a rate for a five year term. After that, the borrower must renegotiate a new mortgage at current rates.
Bottom Line
The COST of a home is dramatically impacted by the mortgage component. Today, we can get a 5% mortgage and lock it in at 5% for the next thirty years!! Both of these opportunities may disappear in the near future. You should take this into consideration if you’re looking to purchase a home.
Courtesy of Lisa Bear RE/MAX Realty Center
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Article inserts compliments of KM Blog
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