It’s Friday and mortgage interest rates are…
Rhonda Porter on 06 22, 2007
Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties). Conforming rate quote below based on owner occupied with minimum credit scores of 680 with an 80% loan to value or lower. Rates quoted are priced based on a 45 day lock with 1 point and there are no prepayment penalties on any of the rates quoted below.
Just for giggles, I have added the change to the rate from my previous Friday’s rate post.
30 Year Fixed: 6.625% (APR 6.779%). Payment per $1000 = $6.40. (up 0.125%)
30 Year Fixed with 10 Year Interest Only: 6.750% (APR 6.906%). Payment per $1000 = $5.63. (up 0.125%)
40 Year Fixed: 6.750% (APR 6.901%). Payment per $1000 = $ 6.03. (up 0.125%)
7/1 ARM: 6.250%% (APR 6.392%). Payment per $1000 = $6.16. (no change)
5/1 ARM: 6.000% (APR 6.144%). Payment per $1000 = $6.00. (no change)
5/1 ARM with 10 Year Interest Only: 6.125% (APR 6.270%). Payment per $1000 = $5.10. (no change)
JUMBO (Non-Conforming) Rates. Pricing is based on the same criteria above, with the exception that the loan amount is $417,001-$650,000 (20% down).
30 Year Fixed: 6.625% (APR 6.782%). Payment per $1000 = $6.40. (no change)
30 Year Fixed with interest only payments: 6.750% (APR 6.920% ). Payment per $1000 = $5.63. (up 0.125%)
40 Year Fixed: 6.750% (APR 6.903%). Payment per $1000 = $6.03. (up 0.125%)
5/1 ARM: 6.125% (APR 6.274%%). Payment per $1000 = $6.08 (no change)
5/1 ARM with 10 Year interest only payments: 6.125% (APR 6.274%). Payment per $1000 = $5.10 (no change)
The roller coaster ride with mortgage interest rates promises to continue with several important economic indicators being released next week. My advice is to always lock in your interest rate…this is a very expensive time to be a rate shopper trying to catch “the lowest” rate.
About the Author: Rhonda Porter
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36 Responses to “It’s Friday and mortgage interest rates are…”
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Are higher interrest rates to be feared or welcomed by prospective buyers? It would be interresting to see what your take on this is. Personally I would think it is a welcome for buyers if the following assumptions are true.
- Buyers tend to buy what they can afford in monthly payments without to much respect for the actual price of the house.
- The supply and demand equation applies to home prices.
So without checking the numbers perfect validity the general idea would be like this:
A buyer who can carry a $3000 monthly payement and has a $100k downpayment would in todays market with ~6$ interrest would look at a ~$600k home.
If instead the interrest rate would be 18% this buyer would look at a ~$300k home for the same monthly cost.
If supply and demand applies you would think that the $600k homes would probably go towards $300k prices in this market.
In which scenario ais the buyer best off? I would say in the 18% interrest rate scebario where the mortage would be $300k – $100k = $200k instead of $500k in a market with today’s interrest rate. The buyer could then refinance when interrest rates go down and not only be sitting with a very small monthly payment but also a home that has very good chance of apreciation from the $300k level when interrest rates now are lower making the demand (pool of buyers) for $300k homes probably outstrip supply. Thoughts?
I would assume that the average home buyer would prefer a lower rate to be able to purchase more home and to pay out less interest. Based on your scenario, I cannot imagine sitting on a 18% interest rate waiting for them to go down so they can refinance.
Buyers are being preapproved at “x” interest rate. When rates increase, they may no longer be approved for what they are trying to buy.
Rhonda, the scenario I described meant to show that the same home that costs $300k in a 6% interrest market would cost $300k in an 18% interrest market due to supply and deman. I.e you get the same home for your monthly payments of $3000k in both scebarios. I can’t see why it would be scary to wait for the interrest rate to go down if you have a fixed rate mortage at 18% with the same monthly payment as with a mortgage of 6%? You are much more likely to get the opportunity to refinance at a lower rate and your mortagage size is so much smaller.
Sorry, it should be
“the same home that costs $600k in a 6% interrest market would cost $300k in an 18% interrest market”
There will of course be a lag between interrest raise and home price decline so it wuld require some patience .
TJ, since this is “your math”…just how much time do you estimate it would take for the “lag” time?
Also, I’m still buried today helping a couple people who were caught up with lending tree and were burned… ie I don’t have a lot of time to be commenting on the post. I might have to catch you all later on.
Posting rates on Friday is something that I have committed to…but biz comes first!
tj,
You aren’t talking about buyers. Real buyers want lower rates, as Rhonda said. You are talking about people who are not buying because prices are too high. Rarely to we, in real life, speak with people who are not buying.
PS Rates have slightly improved since I posted rates this morning. When and if I have a chance, I’ll post updated rates at http://www.mortgageporter.com
Rhonda.
I don’t know the re-industry well enough to know the typical lag. Experts like Ardell probably knows that much better, I’ve heard that prices are said to be sticky though so I guess it would be in the area of several months or more before the lower demand caused by interrest rate hikes would take effect on sellers pricing.
Ardell, I’m sure everyone wants the lowest rate available at the time of purchase but I’m not sure if a time of general low interrest level is the best time to buy since low interrest rates creates high demand which drives prices up. And as someone said you can’t re-negotiate the purchase price but you can re-nogiate the interrest rate.
For people who are already in the process of buying I fully agree that locking a low interrest rate is always a good thing and not wait and risk for it to go up. But I don’t see a need to rush into the process of buying just because rates are going up. I think it could very well be a positive if you have a good portion of patience. This could be of interrest wether you can afford in the current market or not.
It’s just a thought that maybe a high interest rate market is not as bad as it sounds.
I think people who are interest-rate sensitive (first time buyers) would suffer while people with equity or even all cash purchases would benefit the most. If you just cashed out $300k from that overpriced (IMHO) ballard bungalow, you’d theoretically want interest rates to rise and prices to fall and pay cash (or almost all cash) for something – say a downtown condo- that would then be in the price range.
Interest rates increases have the same effect as tightening lending standards on the abilty of someone using leverage to afford a home. Prices don’t fall instantly, but as enough inventory builds prices would fall over time. We’ve had inventory building for a year w/o much if any price decline, so….we’ll see
Anyone who remembers the days of stagflation (I was just a tyke then myself, but I do remember it) knows that 18% interest rates would benefit no one. Because a 10% hike in interest has an effect on the overall economy (read, jobs) that is very detrimental, which is why the central banks have been VERY careful about increasing them. Small increases have a very marked effect on demand for housing and all kinds of OTHER consumer spending, so without VERY high rates of inflation there is just no need to hike ‘em up by 10%. And I think the big lesson of the 70s and 80s was that you can control inflation in other ways that are healthier than hiking up rates.
When interest goes up it goes up across the board on all kinds of consumer loans, not just real estate. And at least with real estate when interest rates go up, there is the possibility of seller financing.
On the other hand when VISA (or other consumer lenders) raises its rates in response to rate hikes, that really screws things up because then not only can you not go out and make new purchases on credit (which we Americans love to do), you are now making huge payments on pre-existing balances that are more difficult to pay down in the face of higher rates. This means people are spending less money, companies are selling fewer goods, and guess what? That means people are losing their jobs.
Yes, this would all act in concert to bring down housing prices but more likely than not the economy would be so unstable, very few people would be interested in buying or able to do so. I think that unless the central banks and various corporate entities collectively lose their minds simultaneously, there is not a whole lot of risk that we are going to be seeing housing lose half its value any time soon.
Thanks, Sandy and Ardell…I couldn’t have said it better myself!
BTW, rates have improved slightly as I mentioned earlier.
And before anyone misinterprets my meaning, I do not they are collectively going to go insane. What we will see is small adjustments, which are necessary to stabilize prices.
I think the bigger issue we are seeing right now isn’t so much rates, as it is more stringent financing requirements. Fewer people can qualify as first time buyers than could 6 months ago, and that creates weakness at the bottom of the market.
Thanks Sandy, the 15% was used to better highlight the thought. If increases are smaller to a lower “max” level as you describe the likely scenario to be shouldn’t the same logic apply though with less dramatic differences?
And to clarify I didn’t say that I think the economy or people in general will benefit from high interest rates. I specifically meant buyers in the limited scoop of their home purchase.
Rhonda –
you might want to reconsider the picture used with your post given this news story today…
http://www.msnbc.msn.com/id/19370592/
Thanks, Bob. I had no idea.
Rhonda,
Feel free to post Friday Rate posts with closed comments. I very much appreciate your honoring my request, and I think it is an invaluable service to our readers. I’m helping with comments as much as possible, but maybe we should just post Friday Rates as a closed comments post.
When I saw your article today I said SHOOT…it’s already Friday again!?!? We just got finished answering the comments from last Friday. We haven’t had any time to write anything that we WANT to write.
So I vote for keeping Friday Rates posted every week…but closed comments on those articles.
tj,
Problem with your logic is:
1) wouldn’t you want the rates to be low when you buy and after prices were impacted to your benefit?
2) wouldn’t you want the prices to then go up after you buy?
High rates are great for senior citizens living on fixed incomes who depend on CD rates and Treasure Bonds for their income source.
Low rates are great for home buyers.
Truth is stable rates at give or take 7% is best for all concerned. The only reason rates haven’t been 7% had to do with 911 as far as I’m concerned. They are back to where they should be.
As to prices being affected by rates, there would have to be a much larger swing, and the value doesn’t change in the manner you suggest. The price doesn’t automatically match the change in payment impact. Speaking from the experience of buying and selling property back before and after double digit rates, the price does not adjust in the manner you suggest. Price is impacted, but not by these small increments of change, and even in double digits, not by as much as you are hoping for.
You need a new game plan
I also want to thank you, Bob. We really appreciate your input.
Ardell, last Friday was very labor intensive. Typically the Friday rates have not been to that extreme…plus, it does seem like Friday came quickly since I posted last Friday’s rates on Saturday evening.
How about if I’m too busy to “manage” my Friday Rate post, then I’ll close comments and explain why in the post…but if I’m available then we can keep it open?
Thanks a lot Ardell and others who took your time to engage in the discussion and sharing your expertise around the subject if times of high interest rates is surely a bad thing for home buyers or not.
Sorry if my question caused you to shutdown future discussions regarding interest rates since i do think some readers might find it interresting (with 2 r’s)
Have a nice weekend!
It’s up to you, Rhonda. I just feel badly that I asked you to post these every Friday without realizing how much work would be involved. So all I’m saying is, I’d rather see you close comments, than discontinue Friday rate posts.
It’s hard enough to blog during busy season. I can’t believe how quickly this week went!
tj,
Please don’t take it personal. I’m ticked off at Synthetik’s a-holeness over on Karen’s article, not you. I’ve just had it with the troll.
P.S. I will add that we do get a bit frustrated with people turning every discussion into some sign that prices are going to roll back to any meaningful extent. I don’t see it happening. I don’t even see the market acting in a flat formation. At present I am seeing 20% appreciation of 18 months ago with no improvements whatsoever (and many needed) out in Redmond. I’m seeing 8% increases in Seattle in so-so neighborhoods and with the season just getting started, I don’t see any signs of prices rolling back or even even with last year.
tj, I don’t it’s anything personal…we just had a whopper of post on late Saturday with comments…some where fair and honest and others were digs.
Comments are great when it stimulates good conversation–something we can learn from.
As I mentioned, it feels like Friday came to soon with this post since I posted last Friday’s late.
And I do think it’s a good idea for me to “close comments” on the rate posts when I’m not available to address them.
This week was especially busy for me with helping 3 different clients from horrible Lending Tree situations. I do plan to blog about these stories later on after the transactions are closed. It’s as if someone put a lighthouse in front of my office and said I’m one of the few safe lenders…it’s really been amazing.
I have not had time to run scenarios requested from comments, etc.
Again, tj…it’s not you, it’s me!
[...] It’s Friday and mortgage interest rates are…The roller coaster ride with mortgage interest rates promises to continue with several important economic indicators being released next week. My advice is to always lock in your interest rate…this is a very expensive time to be a rate … [...]
tj, I think you are right on the money. If you bought a $300,000 home at an 18% interest rate, then let’s say interest rates over time drop back to 7%. That house would appreciate, you would also have the option of refinancing into a lower payment. If you bought at 7% and rates went to 18% your home would drop in value and refinancing could be a problem if your loan went to a variable rate. It is all supply and demand, look at what is happening now with the foreclosure market.
M’s commerical on right now so… you guys go ahead and wait for 18%…we’ll compare notes with those who bought now once rates reach your purchase point.
Your concept may be interesting at best, but think about those who buy now and the money the save on interest with their lower rates (under 7 for a 30 year) by the time rate would reach 18 if ever?
Assuming 20% down on a 600k home at 6.75% (based on the pricing above) and 20% down on a 300k home at 18% (based on the fantasy rates mentioned via comments to this post). Your principle and interest are:
600k home at 6.75%: $3113
300k home at 18%: $3617
Which scenario makes more sense to you? Factor in the waiting for what ever rates may or may not do and…I’m with Sandy, the Fed is all over controlling interest rates. I believe they learned a lot from previous mistakes back in the Carter era… bottom line, everyone has to make their choices and live with them.
Personally, I would NEVER recommend waiting for 18% rates that would cause havoc on the economy…jobs…etc. Buy the time “if and when” that happened, your $600k home at 6.75% could be paid off!
Rhonda, not 20% down, $100k down and 18% was just a value to highlight the logic. I don’t understand the defensivness it’s just a discussion around interest rates and their potential impact on the purchase of a home. I don’t think I attacked anyone, at least I didn’t intend to. I know of people who think they missed the boat when interest rates went up and will have to wait until the next sub 5% era to think of buying a home. I was just not convinced that is the case and wanted to bounce around the idea among re-professionals. Either I was wrong or I just choosed the wrong day to ask.
tj,
We, like anyone else, like to horse around sometimes. But we like to have fun when horsing around, and running scenarios on far fetched hypotheticals is work to us
If scenarios are based on reality, then everyone learns. If scenarios are based on far fetched figures, then we just confuse people who pop in to talk about reality and gain insight.
I received an email from someone saying they had “a project for me” with an Excel Spreadsheet of 25 investment properties I should fill in 10 columns with info that only agents can access. Many of the questions I would have to visit the property and talk with the owners to get the answers to. Sure the spreadsheet would have been interesting when done, but that’s not my idea of fun
We’ll be happy to talk about the here and now. Even reality based tomorrows. But people who want to talk about what they will do when prices get to half of what they are now need to BS on SB
It seems to me that the question is “where are interest rates heading”. That is what will determine whether this discussion is relevant or not. Certainly if interest rates do not rise the whole issue is moot. If they do rise significantly, then the diiscussion is relevant and quite important (for both currunt homeowners contemplating selling and prospective buyers). Some posters above seem to have the opinion that interest rates will not increase much from here because the Fed will not raise them or risk significant fallout. Unfortunately, the Fed doesn’t set the interest rates that matter to real estate, the credit market does. And increasingly over the last several years it is foreign buyers of our bonds that set our rates. In fact, longer rates have been artificially held lower than the Fed has wanted due to these foreign buyers (”the conundrum”). I think you’d have to agree that the recent rise in rates had nothing to do with the Fed rasing rates – it was the result central banks buying less bonds and credit markets reacting to perceived increased credit risks (due to a re-rating of bad loans). Can this continue? Most certainly it can. Will it continue? We’ll have to wait and see. However, I think it’s quite misleading to tell people that interest rates won’t rise further because the Fed won’t let them!
I’ll stake my reputation that we are not going to see 18% interest rates this year. How about you Rhonda.
7% maybe. 18% NO!!
Back in Philly I would say if we ever see interest rates at 18% while I’m writing for RCG “I’ll stand naked in Gimbels window”. But I’ll have to make it the downtown Nordstrom’s
We’re posting FRIDAY rates…let’s stay on topic and compare them to last week or last month, not some fantasyland where rates go to 18% so prices can come down to half their current prices.
Jay, I’ve never said that interest rates won’t raise. I think they will and are. Interest rates will also come down. I think we may see rates in the 7s but, as Ardell says…18%…I don’t think so.
The Fed does not controll mortgage interest rates…we’ve discussed this many times at RCG. They do take measures to try controlling inflation. Inflation impacts mortgage interest rates. That is essentially what I was discussing perviously on this post (I think it was here)….
Ardell,
I agree. there are way too many comments on here and maybe they should be turned off.
Ok, since the use of 18% seems to confuse the topic I’ll use 6% and 8% instead to see if the discussion can around the impact of interest rates and not wether 18% will happen or not.
1. $600k home at 6%, $100k down. ~$3000k/month payment
2. 8%, $100k down, $3000k/month ~$500k home.
1. $500k mortgage
2. $400k mortgage
tj,
I have never been one to advise WAITING for rates to go up or down.
If someone finds a home they want to purchase, they should as long as they qualify for mortgage that will be a proper vehicle for their financial needs.
If you want to wait, then do so.
I am going to close comments because I’m going to my sister’s house today to celebrate her birthday and I won’t be around to respond to comments.
Perfect timing for you suggestion, Michael!