027. loans will cost more

In this episode, i discuss a recent article at cnnmoney.com titled “getting a loan will be pricier“.

Hello everybody and welcome to another episode of the Reside Daily Bite; I’m your host, David Doucette. We have a nice windy, sunny day here on Southern California so, if you hear any noise, any windows rattling…it’s Mother Nature; not sure if any of that will be picked up by the microphone but if you hear it, have no fear it’s just Mother Nature bringing us some very strong winds.

The article I want to talk about today is “Getting a loan will be pricier” and if you remember or if you’ve been following us on episode 22 of the daily bite, I talked about interest rates will rise but by how much and when…and this talks a little more about that interest rates going up. They talked about the Federal Reserve playing a key role in keeping the cost of the borrowing so low and they’ve been keeping Fed funds rate basically near 0% since December 2008 as they worked to really spur the lending and economic activity. But now, they’re saying as the economy heals, that rate is sure to come up, as will the cost of loans. Let’s talk about what’s happening right now, the 30-year-fixed-rate mortgage reached an 8-month high last week averaging 5.21%, according to Freddie Mac’s weekly survey of conforming mortgage rates. Several times in 2009, mortgage rates dipped below 5%, considered to be record lows, thanks to the Federal Reserve’s help. So what we saw in 2009 was that mortgage rates were below 5% for a lot of the time. Now, it’s important to note this is historic record lows and even the 8-month high of last week (5.21%) is still a really low interest rate. And we know it can’t stay there forever; and we know it’s going to be going up and again, by how much and when, that’s what we don’t know but this article talks a little bit about that.

Michael Fratantoni from Mortgage Bankers’ Association says, “Throughout most of the last year we were right below or right above 5%, which really is an extremely low rate, historically” -which we’ve just talked about. “MBA has been predicting mortgage rates would rise, maybe even reaching around 5.8% by the end of this year. And experts predict the rates will range around 6% in 2011.”

So, this time next year, what they’re saying is we’re probably going to be around 6% and that seems to echo some of the other things I’ve been reading and some of what the other experts have been saying. So these historically low rates that we’ve been seeing are going to soon probably be a thing of the past.

Now, with that said, 6% is still a low interest rate but what the article says is, “Mortgage rates can really impact consumers by limiting what they can pay for a home.” And they give a good example that I want to share with you…”Take the $165,000 median home price of existing homes sold in February. A buyer with a 20% down payment would pay just over $725 a month in mortgage payments for a 30-year fixed loan at today’s rate. Raise that rate by a half point, and the same buyer would only be able to afford a home worth $156,000 to keep payments near the $725 a month level.” So, if you reduce the purchase price or the ability for the purchase price by about $9,000 -just that half a point increase in the interest rate.

And then it also talks about credit cards (I’ll touch on this briefly)… The average credit card rate rose to 14.7% last week from 12.55% from six months ago. And we’ve all seen this. I know I’ve seen it and credit card companies are changing their terms and conditions. And they say it’s going to keep going upward a bit, because credit losses aren’t going to improve for the banks until unemployment heads down. And an interesting note, “While new credit card laws passed by Congress in the past year make it more difficult for banks to raise interest rates in several ways, they won’t touch hikes in rates based solely on a financial index. One common index used the prime rate, is at a 3.25% low and is expected to increase.” When that prime rate increases so will the interest rate on the credit cards. Then, they also talk about auto loans…bright spot could be auto loans, which have been at record lows. Auto loans averaged 4.4%, much lower than the 7.3% average back in March 2007 and they expect the auto loans to stay low for quite some time.

That is it, again, further proof or evidence that the general feeling is interest rates are going to rise.

If you have any questions or feedback… 1-800-476-5579 or you can email feedback@residerealestate.com. I’d love to hear what you guys thought of this episode or if you have any other questions you’d like me to address or if you have any ideas for future Reside Daily Bites. My name is David Doucette and thank you so much for checking us out today.

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