The Federal Reserve continues to try and boost the national housing crisis. Mortgage rates on Thursday fell to a 37 year low. Average rates on a 30-year fixed rate mortgage rate declined to 5.19% down from the previous low of 5.47%.
The government’s aim in these debt purchase programs is to bolster the mortgage market, free up lenders to make new and lower-rate loans and stimulate the worst housing market since the Great Depression.
Mortgage rates should stay low and we will stay below 6 percent throughout much if 2009 as the Fed continues to pour money into mortgage-backed debt with the goal of keeping mortgage rates low.
In the previous two months 30-year fixed rate mortgage rates have fallen more than 1% and it appears like rates will “continue to remain low for the majority of 2009 as well” said HSH vice president Keith Gumbinger.
My intial thoughts:
- Now is an excellent time to buy. Wisconsin Rapids home prices are very reasonable and their are many different homes to choose from (no matter your price range).
- This is also the time to refinance.
- If you think you’ll be selling your current residence in the next couple of years, you should seriously consider selling now.
Why sell now?
At some point interest rates will rise again. Lets say mortgage rates eventually climb back to 6.25%. The payments on a $150,000 mortgage would be:
- 5.19% = $822.74 per month
- 6.25% = $923.58 per month
As mortgage rates climb back to “normal” your mortgage payment will have gone up over $100 per month for the same loan.
What that means is you may not be able to afford a $150,000 mortgage at the higher interest rate. In order to keep your mortgage payments the same, in two years you’ll be purchasing a home worth less than your current home.
At an interest rate of 6.25% a $133,500 mortgage will equal your payment on a $150,000 mortgage at 5.19%.
In essence you’re losing over $16,000 in buying power when mortgage rates go back up. This will cause less homes to be on the market as well as less people who are willing to buy, especially if they take advantage of today’s low interest rates.
Read this for more information on how dropping interest rates will affect your buying power.
Click here to see a graph detailing interest rates since 1971.
Update: interest rates did hit 4.5% last week, for all of an hour…
Sources: Home Loan Rate Flat After Fed Cut and Headed Lower and Yahoo! News
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My name is Adam Holberg and I’m a Realtor with First Weber of Wisconsin Rapids. This website is designed to inform and help bring conversation to a topic I love, real estate.