Great news going into the weekend.  We have seen a nice drop in rates over the last week, about 0.50% across the board.  This drop equates to an increase in buying power and an increase in buying options.

Increased buying power, four examples with a 30 year fixed:

• A payment of $1,565 at 5.25% equated to a loan amount of $283,400.  Same payment but at 4.75% equates to a loan amount of $300,000.  Loan amount increase of $16,600.
• A payment of $2,175 at 5.25% equated to a loan amount of $393,875.  Same payment but at 4.75% equates to a loan amount of $417,000.  Loan amount increase of $23,125.
• A payment of $3,440 at 5.375% equated to a loan amount of $614,300.  Same payment but at 4.875% equates to a loan amount of $650,000.  Loan amount increase of $35,700.
• A payment of $5,577 at 6.00% equated to a loan amount of $947,000.  Same payment but at 5.50% equates to a loan amount of $1mil.  Loan amount increase of $53,000.

Increased buying options:

Let’s say the buyer was already going to borrow $417,000 or $650,000.  The reduction in interest rates would lower their payments by $127 at $417,000 and almost $200 at $650,000.  This loan payment reduction might now allow buyers to look at communities with amenities such as a community pool, tot lot/playground, and common ground landscaping; amenities that many families are looking for but were unable to afford due to the $50 to $200 additional HOA fee.   The lower mortgage payment now leaves room to absorb that HOA fee. This gives the buyer more properties from which to choose.

I wrote a very similar email in July of 2008.  In that email, the rate decrease for conforming loans was from 6.25% to 5.875%.  We are still a full percentage point lower!  Please have your buyers contact me as soon as possible to see how much more they can afford at today’s rates.

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