Financing Information By David Wright- Sanibel and Captiva Community Bank
Publication Date: March 9, 2010
Though the jury's out on where we stand in terms of an overall economic recovery, mortgage rates remain historically low and tax incentives remain intact. There's agruably never been a better time to purchase a home. That being said, here are a few significant dates to keep an eye on:
1. On March 31st, the Federal Reserve will discontinue purchasing Mortgage Backed Securities. Most economists believe we'll see increased mortgage rates as a result.
2. Those wishing to take advantage of home-buyer tax incentives must have a binding purchase contract in place no later than April 30th.
Today, I'd like to address a common mistake many home shoppers make - trying to 'time the real estate market'. In other words, some shoppers try to make their purchase at or near the bottom. In theory, this seems like a good idea. However, the following illustration makes a powerful point:
Hypothetical Situation A:
Alvin has his eyes on a home currently listed for $250,000. He's pretty sure he can negotiate the seller down to $240,000, but right now, the seller's stuck at $245,000. What if Alvin acts today and pays $245,000 for the home? Assuming he qualifies for a 30-year fixed mortgage with a 5.5% interest rate and puts 20% down*
1. Alvin ends up financing $196,000 ($245,000 x .8).
2. Alvin's monthly payment (P+I) would be approximately $1,113.
3. Over the 30-year loan, Alvin will pay $204,631 in total interest.
Hypothetical Situation B:
Alternatively, let's assume that Alvin hangs in there for 60 days and gets his target price of $240,000. He feels great because he saved himself $5,000! However, let's also assume that in the 60 days that passed, the rate on 30-year fixed mortgages increased from 5.5% to 6.5%*. (This type of rate increase can sometimes occur in a week, let alone a 60-day period).Alvin's still prepared to put 20% down, so
1. He'll finance $192,000 ($240,000 x .8)
2. However, because interest rates rose from 5.5% to 6.5%, Alvin's monthly mortgage payment is $100 higher ($1,213) than in Situation A when he'd paid $5,000 more for the home!
3. Furthermore, Alvin will pay over $40,000 more in interest ($244,885) in Situation B over the life of the loan!
As you can see, trying to time the market can be a risky proposition - and often backfires. If you or anyone you know is in the process of purchasing a home, please feel free to share this advice with them. As always, I'd be happy to conduct this analysis free of charge and am honored by the trust you've instilled in me as your mortgage advisor for life.
* By the way, for illustrative purposes I used hypothetical rates for the above scenarios. If you'd like to know what today's mortgage rates are, please feel free to call me today!
David A. Wright
Sr. Vice President, Residential Mortgage Lending Group
Sanibel Captiva Community Bank
2475 Library Way
Sanibel, FL 33957
ph (239) 472-6100
fx (239) 333-2957
m (239) 209-1059
Apply On Line: www.mortgage.sancapbank.com
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