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Over the last few years the Federal Government has been buying mortgage-backed bonds at a very aggressive rate. This has had the effect of keeping interest rates near record-lows, at about 4.25% for a 30-year fixed-rate mortgage. However, the Fed has slowly been reducing the amount of mortgage-backed bonds they are buying. The have announced that they plan to stop buying them altogether, and that could happen as early as October. The end result would be that the artificially low interest rates we have been seeing may not stay there. Many anticipate rates to jump as high as 5.5% as early as this coming spring.
The higher rates are still attractive to buyers, historically speaking, as interest rates have been around 8% on average for the last 30 years. But if you do the math, the small percentage or so jump in rates could have a huge affect on your spending power. For example, if you borrow $200,000 at 4.25%, your monthly payment will be about $983 a month; a rate of 5.5% would make your monthly payment about $1,135 a month. If you plan on living in your home for 10 years, you could save as much as $18,000 by locking in current interest rates.
If you have the option of moving today, we highly recommend it. We don't know how long it will be before we see rates fall this low again, so now is the time to lock in low rates for future savings. If you have any further questions about changing interest rates, please feel free to give me a call. I would love to discuss your real estate options with you.
