The Spring Heat and Interest Rates

Though it has been a long winter and spring weather has been slow to arrive, the Spring Market is upon us. There is now a definite increase in the number of home purchases being transacted.   It’s amazing how much weather can influence home sales.

Mortgage Rates Have Also Risen

Yet now, compared to only a few weeks back, mortgage rates have also increased. For a while one could get a 5-year fixed mortgage for as little as 3.69% as a best rate.

Currently, Centum Financial Group is displaying a best rate of 4.09% and a bank posted rate of 5.69%. There’s no question that 4.09% is still an extremely good rate making buying extremely attractive.

From 35 to 30 Years

Yet here is how the change in best rate can affect affordability. Let’s use the 5-year fixed rate and today’s reduced maximum amortization of 30 years. Prior to March 18th, 2011 the maximum amortization was 35 years.  

Now let’s say you qualify for a monthly interest and principal payment of around $916.00 plus or minus.

Here’s how it stacks up.

  • At a rate of 3.69% and at $916.25 per month you would qualify for a mortgage of $200,000.
  • At a rate of 4.09% and at $916.31 per month you would qualify for a mortgage of $190,650.

Affect on Affordability

As can be seen, this reduces the mortgage amount you qualify for--and in turn how much house you can afford--by $9,350.

What if you do qualify for a $200,000 mortgage?

How much more would it cost you? The monthly payment on $200,000 at 4.09% would be $961.25. That’s an increase of $44.98 per month and $539.76 per year.

The Rate Increase vs. Rate of Inflation

The best rate increase works out to a 4.91% increase compared to the inflation rate of 3.3% which was last reported in March 2011. This though may be an unfair comparison, as mortgage rates can fluctuate.

We’ve been told that rates may continue to increase.

The Good News is….

Having said all that, the good news is that mortgage rates are still a great value for potential buyers today, improving affordability compared to just a couple of years ago.  

NOTE: Best rates are offered to mortgage shoppers with excellent credit. Quoted rates are tied to a person’s credit history.

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Eugene Pilato

Eugene Pilato

Broker of Record
CENTURY 21 Today Realty Ltd., Brokerage*
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