"What the improving economy means to home shoppers…"

"What the improving economy means to home shoppers…"

By Cynthia M. Parker, ABR®, SFR®, CDPE®

One plausible scenario….

Interest rates will increase…it’s not a matter of if, it’s a matter of when.  Property values will rebound…again, not a matter of if, it’s when.  Now, while a 3% uptick over the term of a year, (which historically, is the national average) may not seem like much an increase, this combined with an increase in interest rates, will certainly make a significant difference in your buying power…and here’s how.

Say that your current interest rate (rate that you have been approved for, at least) is 4.75% on a 30 year fixed loan.  Right now, you would be able to purchase and your monthly payment, with interest, would be about $1,044.00 per month on a home with a loan amount of about $200,000.  A modest increase to 5.75% , (which is quite plausible for a year of recovery) would mean an increase to $1,168.00 per month, as reflected below.

So what does this mean?

Well, for one, if you are approved for a loan today at $200,000, but believe that you will save more for a down payment or wait for better market conditions, you may actually be losing vital ground.  An increase of merely 1.0% over one year could necessitate an additional $12,500.00 of down payment to offset the increase in interest rates, if you were not able to be approved for more.  So, you would have to reduce your buying power by 12k…and if you add in a modest 3% increase in home prices over the course of that same year, it could mean nearly $20,000.00 …in less sales price of your new home! 

In the Denver Metro area market, $20,000.00, give or take, makes a HUGE difference in the inventory available to you. 

Example...

 $                          150,000           200,000            250,000

4.75 %             $783.00           $1044.00         $1305.00                       

5.25 %             $828.00           $1104.00         $1380.00

5.75 %             $876.00           $1168.00         $1460.00

6.25 %             $924.00           $1232.00         $1540.00

6.75 %             $973.00           $1298.00         $1622.00

* The table above displays current interest rates that are anecdotal for several common loan types for the purchase of a single family primary residence amortized for 30 years and only show principal plus interest, NOT CURRENT RATES.  Many products are available. Refinance rates may vary from purchase rates. For additional information, please seek counsel from a licensed mortgage broker/banker, or call Cynthia: 303-300-8989 or email: Cynthia.Parker@remax.net for a list of top lending professionals, who will advise you accordingly. 

If you or anyone you know has further questions or would like more info on taking advantage of the current market now, call me: 303-300-8989.  I’d be more than happy to help!