Tuesday, June 25, 2013 - Article by: Barb Lanis - The Federal Savings Bank -
Mortgage Rates have continued an unprecedented march upward in the last several days. Fueled by worries over the Fed's end to their market injection via QE3, this has left the mortgage market in a state of uncertainty. Although there are other market "drivers" to what is going on with rates, it is probably a good idea to assume that rates will continue to rise in the next few months.
As a very conservative lender, I am recommending that my clients Lock rather than Float. If the numbers work for your loan and you are comfortable with the payment, why add grief to purchasing a home or refinancing? One of my favorite phrases is "Close only Counts in Hand Grenades and Horseshoes." Well, that's not exactly correct, because there are other Close sports (like Bocce), but I think you understand what I mean.
If it were my mortgage, I would go the "close" route. I am not a gambler.
Keep in mind one important element when you are feeling angst over interest rates. Bring it down to the basics and take a good look at what the rate increase actually means. This is important and sometimes one can get hung up on the actual rate, rather than the simplicity of what this means to a monthly payment.
Check out these examples:
1) A $150,000 mortgage at 3.75% / 30 year fixed would have a Principal & Interest payment of $694.67 If the interest rate increased by a full 1% to 4.75%, that same mortgage payment would be $782.47. This represents an increase of $87.80 per month. An approximate 12.5% increase in payment.
2) A $300.000 mortgage at 3.75% / 30 year fixed would have a Principal & Interest payment of $1,389.35 If the interest rate increased by a full 1% to 4.75%, that same mortgage payment would be $1,564.94. The increase in payment is $175.59 This also represents an increase of roughly 12.5% in the monthly payment.
If an increase of 12.5% is a deal-breaker for your affordability ratios, then now would be a good time to evaluate whether you even can (or should) afford the home. You have to have a Life Outside of Your Mortgage.
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