Interest Rates Trump Tax Credit

Opportunities like this don't last forever

Home mortgage interest rates are at unbelievably low levels right now but they seem to be taken for granted.  How odd is it that very few people focus on how changing rates affect purchasing power.  These low rates actually pencil out to be better than the expired $8,000 First Time Home Buyer Tax Credit.

Consider a $250,000, 30 year mortgage at 4.375%.  The monthly principal and interest payment would be $1248 per month.  The same monthly payment at $5.375%, where rates were a year ago, would be for a mortgage of $222,870.  That is over a $27,000 difference or 3.5 times bigger than the tax credit.  That is just one way to look at the difference.

Looking at the difference in payment for the same mortgage amount, the principal & interest payment on a $250,000, 30 year mortgage at 5.375% is $1,399 per month, or $151 per month more compared to the 4.375% rate.  In just 5 years, the savings would be over $9,000!  And over the live of a 30 year loan the savings would be more than $54,000.

These numbers are mind boggling!  Yet, first time buyers tripped over each other clamoring to purchase a home prior to the end of the tax credit on April 30th, 2010.  Even in the face of the lowest interest rates in our lifetime, buyers just aren't rushing to purchase.  As soon as the economy starts to move in a positive direction, interest rates will increase.  As a buyer, today's rates should be very motivating.

When I first became a Realtor in 1993, interest rates were around 9%.  At the beginning of 2000, rates were at 8%.  Make no mistake, you will see rates like these again.  The difference in monthly payment at 8% compared to 4.375% for the same loan amount of $250,000 is an additional $586 per month.  Don't take the low rates for granted.

Get out and buy some real estate!