Interest Rates

21 10 2010

Right now the rates are at historic all time lows! The current Freddie Mac rate is 4.35% On their website I just checked the monthly rates and this is a record low. Their chart only goes back to 1971 – 39 years; but there has NEVER been a month before this low!

Smart buyers are calculating this right now more then trying to predict “market bottom.” For example on a $200,000 home loan at this rate the Principle and Interest would be $995.62/month. Total cost in 30 years = $358,423. Now suppose the market price of the house moves up or down 10% before you make a move. Up to $220,000 – $1095.19 = $394,268. Down to $180,000 – $896.06 = $322,581. So about a 36k swing over 30 years.

Now what happens when the interest rate moves back into “normal levels”? The average for the last 39 years is about 9%; but let’s just take 6% for example. $200,000 @ 6% = $1199.10/month = $431,676. That is over $73,000 more! Twice as much increase in actual cost as a 10% swing in property value. Wow!





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