End of Low Rates May be Sooner Than You Think
Posted 02-11-2010 at 04:35 PM by GregTraub
There are a lot of things that will be changing in the coming months. The Home Buyer Tax credits will expire at the end of April, new FHA guidelines will come into effect, and we may see interest rates jump between 1% and 2%! Many of you probably know about the $8,000 and $6,500 credit expiring for those not under contract to buy a home by April 30th, and a few of you may even be so astute to know about the FHA changing their guidelines making it harder to get approved for a mortgage. But I think it’s safe to assume many of you didn’t know of another little talked about program that will end March 31st that promises to raise the rates on mortgages.
Over the past year or so, the Federal Reserve implemented a MASSIVE effort to purchase mortgage backed securities. For us normal folk, without getting to in depth, the Fed is lending it’s money to fund the mortgages you and I use to buy homes; and they’re lending the money for much cheaper than the normal market would….keeping interest rates low. They have bought more than 1.25 TRILLION, yes with a T, worth in mortgages….but even they can’t print money forever….and they are ceasing to buy anymore as of March 31st.
Some experts say without the Fed providing the extra funding for mortgages, rates left to market forces are likely to rise 1.25%....most of my clients are receiving rates around 5.25% now.....as of April 1st, that would be 6.5%. Still low by historical standards, but on a $150,000 loan that can increase your payments by almost $120 a month!
The big question is, has the housing market found its legs or are we still on shaky ground? No one can say for sure….but I like to have my butt covered in either event. If I was looking to buy and needed to finance the purchase, I’d do it soon….a low interest rate can save you Tens of Thousands over the life of the loan, and an extra $6500-$8000 helps hedge against the market depreciating a little in the coming year. If I were on the selling side, I’d also sell now, in case the market takes another dip should buyers dry up as rates rise and credits expire. It’s better to sell now even if you are competing against 10 others for 3 buyers….if 4 months from now you could be competing against 10 others for 1 buyer.
And by the way to put that TRILLION $ number into perspective, this is what $1 Billion in $100 dollar bills looks like.....
Now this is what $1 Trillion looks like....Notice the pallets are DOUBLE stacked, and the man is the little speck in the bottom left corner.
No matter how you look at it, that's alot of money being taken out of the system, and it will cause changes...be prepared for them!
-Greg Traub
My Central Florida Home Expert
GregMTraub@gmail.com
Over the past year or so, the Federal Reserve implemented a MASSIVE effort to purchase mortgage backed securities. For us normal folk, without getting to in depth, the Fed is lending it’s money to fund the mortgages you and I use to buy homes; and they’re lending the money for much cheaper than the normal market would….keeping interest rates low. They have bought more than 1.25 TRILLION, yes with a T, worth in mortgages….but even they can’t print money forever….and they are ceasing to buy anymore as of March 31st.
Some experts say without the Fed providing the extra funding for mortgages, rates left to market forces are likely to rise 1.25%....most of my clients are receiving rates around 5.25% now.....as of April 1st, that would be 6.5%. Still low by historical standards, but on a $150,000 loan that can increase your payments by almost $120 a month!
The big question is, has the housing market found its legs or are we still on shaky ground? No one can say for sure….but I like to have my butt covered in either event. If I was looking to buy and needed to finance the purchase, I’d do it soon….a low interest rate can save you Tens of Thousands over the life of the loan, and an extra $6500-$8000 helps hedge against the market depreciating a little in the coming year. If I were on the selling side, I’d also sell now, in case the market takes another dip should buyers dry up as rates rise and credits expire. It’s better to sell now even if you are competing against 10 others for 3 buyers….if 4 months from now you could be competing against 10 others for 1 buyer.
And by the way to put that TRILLION $ number into perspective, this is what $1 Billion in $100 dollar bills looks like.....
Now this is what $1 Trillion looks like....Notice the pallets are DOUBLE stacked, and the man is the little speck in the bottom left corner.
No matter how you look at it, that's alot of money being taken out of the system, and it will cause changes...be prepared for them!
-Greg Traub
My Central Florida Home Expert
GregMTraub@gmail.com
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