Interest rates are near historical lows and in many cases buyers are locking in rates that start with a 4. This is unheard of and represents one of the great buying opportunities in modern times. I just received a quote today for a 30 year conventional loan (below $417,000) with no discount points for 4.875%. This rate assumes at least a 10% down payment and a FICO score of at least 740.
I remember my first sale back in 1992, the interest rate was 8% and everyone at that time was saying that it was a pretty good rate, not the best, but reasonable. During the last decade we have become spoiled. Rates have been mostly in the 6 – 7% range with a few quick dips into the 5’s.
Now I hear people wondering if they should wait for rates to drop further, maybe to 4%. Hello, how much further do you want them to go? I guess it is human nature to get greedy when you start taking something for granted. But I say wake up and lock-in right now! 4.875% could turn into 6% in a flash and then where would you be? I have always been pretty conservative with my planning and when I am ready to purchase or refinance I plan using today’s rates and lock-in today’s rates. Call me crazy but I don’t think you should gamble on something that can change your payment every month by a significant amount. Here is a continuum of principle and interest payments at different interest rates. This assumes a $400,000 loan.
- 4.875% = $2,116.83
- 5% = $2,147.29 ($1 a day savings)
- 5.25% = $2,208.81 ($1,103 saved a year)
- 5.5% = $2,271.16 ($1,851.96 saved per year)
- 5.75% = $2,334.29 ($2,609.52 saved per year, a nice vacation?)
- 6% = $2,398.20 ($3,376.44 saved per year, that is $16,882 over 5 years and $101,293 over 30 years.
The point is, that interest rates are fantastic! If you are happy with your house, you should look into refinancing. If you might consider a move during the next few years, think about it now. That new house will never be more affordable. Good decisions now will pay off for years to come.