Advice for Buyers > Financing > Mortgage Rates - What's the big deal?

Buying a home is a long and complicated process.  These articles will give you an idea of what to expect throughout the process as well as what to watch out for.  If you have questions about buying a home a welcome you to contact me directly.  Neil Kearney 303-413-6624  Neil@NeilKearney.com

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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.

Last updated on November 29, 2009 by Neil Kearney