Tuesday, February 1, 2011

Mortgage Rates Tick up slightly Last Week - How much is that in monthly payment?

Last week, the average 30 year fixed rate mortgage across the country was 4.84%. According to this survey from Bankrate Monitor (all of us Monitor's are friends), that's up 4.8%. Why such a an odd uptick? Mortgage banks usually adjust rates in basis points. 100 basis points equals 1%. So 1 basis point is .001 in interest rate. A 4.8% increase in rates to reach 4.84% is equal to 25 basis points.

What is the impact on monthly payment of a 25 basis point increase?   (that's a quarter of 1%)

Well, let's look at the impact to $100,000 in loan amount.  Then you can figure out how many $100,000 in mortgage balance you and extrapolate out the impact to your home purchase.

The week before last the average rate on 30 year fixed rate mortgage was 4.59%.  The principal and interest payment on $100,000 at that rate over 30 years is $527.09 per month.  At last week's rate of 4.84%, that payment would be $512.05 or a difference of $15.04.

Now let's say you are contemplating buyers a $535,000 condo here is Hoboken.  You are putting down 20% or $107,000 and will have a mortgage of $428,000.  That's 4.28 $100,000s.  So, multiply $512.05 X 4.28 to get a monthly principal and interest payment of $2191.16.  Had you gotten the mortgage the week before you would have saved 4.28 X 15.04 or $64.37 per month.

Interest rates are still good.  Holding everything constant, if interest rates go up, home prices will go down.  Everything else never stays constant however.  If the job market picks up and consumer confidence starts to gain momentum, buyers will flood the market given how low current prices are.  Because of all of the foreclosures (which by the way are peaking now - Q1 and Q2 and will continue through the year) and shadow inventory, many more units will become available.

A matter of proportion will determine how home prices and the cost of financing will pan out in terms of monthly cost.

Information Provided by Donna Antonucci
Prudential Castle Point Realty


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