Mortgages Made Simple with Rick Gundzik

Thursday, June 25, 2009
4.5% Mortgage Rates, Get Over it - June 25, 2009
We're making a few changes to our blog to better serve all of you. We're going to be moving toward a more text based blog. And we'll also be increasing the number of weekly posts as we're getting a new sponsor. Mortgages Made Simple logo The podcast version will contain the same content but if you find it more convenient to read our blog you'll receive all the main points we want you to grasp to navigate your way through the mortgage market.

Today's topic is "Why aren't mortgage rates at 4.5% like somebody promised", or as I titled it "4.5% Mortgage Rates, Get Over it." Attempting to avoid a political debate, because there is no winner here, I'll suffice it to say that everyone thinks President Obama promised 4.5% mortgage rates. I don't think he did, maybe Ben Bernanke did, but I don't remember either of them quoting an exact interest rate. One man, nor government can control the free market, especially the bond market. Granted, Bernanke wields a lot of influence when he says the Fed is buying mortgage backed securities, but once the Fed stops buying, rates go up. And ever since the Fed announced they would be buying mortgage backed securities early this year, rates have gone up and up. (A lot of people buying mortgage backed securities lowers rates, while selling raises rates due to supply and demand influences. Sorry it's Economics 101 all over again.)

In any case, my point is this....if you can benefit from refinancing your home now, do it! I've seen predictions for mortgage rates to go as low as 3.5% or as high as 8% in the next 12 months, the fact is nobody knows.

Do this simple test, rates are essentially 5.5% today for a 30 year mortgage for a loan amount of $417,000 or less. Take your rate now, let's say 6.75%. Take the difference in those two numbers in 1/8ths. In our example, there are 10 1/8ths between 5.5 and 6.75. For each 1/8 difference in interest rate, there is about an $8 difference in your monthly payment for every $100,000 of money borrowed. So if you have a $300,000 mortgage at 6.75% you could save approximately $240 per month by refinancing. (8 x 10 x 3 = 240) For most people that makes sense, and if rates go to 3.5% you can do it again. But by all means don't miss the boat if you can save money.

P.S. You can use a mortgage calculator too, but this is more fun.

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posted by Pac Res @ 10:02 AM  
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