Monday, February 7, 2011


Mortgage rates are moving up, up, up, lately and yet they are still at almost historical lows!  Yet, every tick (basis point increase) has an impact on your purchasing power.

So, here are two ways to look at things.  Let's take a media-like Maplewood home price of $500,000, put down 10%, with $14,000 (yes, Essex County has high taxes even though we have a great eclectic mix of people and really great access to NYC).  Making this purchase with last Tuesday's 4.84% 30yr fixed rate would give you a monthly payment of $3,858.   Making this same purchase at $500,000, 10% down and $14,000 in taxes with today's rate of 5.12 would now cost $3,935 or an increase of $73.00 per month.

However, another way to look at this is working from a monthly budget of what you want to spend on a home.  Obviously, you are always best to start with a mortgage broker to check out the range of rates that work for your credit and income, then I recommend you collaborate with a financial analyst/CPA to check out what your net payments will actually be after taxes. 

If you concluded, as in the first example above ($500K, $14,000, 10%D,4.84%30YR) that you hit your maximum gross monthly payment of $3,858 and you aren't capable or willing spend more, you would now be limited to a purchase price of $485,300, or a net reduction of almost $15,000 or 3% of your purchasing power. 

So, if you were buying a home last Tuesday and didn't lock your rate, you are now looking at 28 more in basis points of increase in the past 6 days and a corresponding reduction by 3% of your purchasing power.

I leave the decisions to you, but if it were my money.......

Mark Slade
Keller Williams
Maplewood, NJ

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