Buying Power – By the Numbers

School is back which adds to a little more traffic, but also tends to re-focus people overall as we move out of vacation mood and settle into the daily grind. What am I seeing out there? Interest rates are in the 4’s, which haven’t been this low in decades.

Low interest rates give people more buying power.

For example, a $200,000, 30 year fixed rate loan at 4% will be $954.83 a month, while the same loan at 6% will be $1,199.10. Not only is your monthly payment lower, but your total debt-to-income ratio is lower too. In other words, you may qualify for a higher loan amount, than you normally would at 6%. People are taking advantage of this in 2 ways, by re-financing their existing loans or selling their existing homes and moving up.
Understand, re-financing costs money, so while you can often add some of your closing costs into the new loan — it still costs something because you are adding to the principle. If you don’t see yourself living in the house for 3 years or more, if may not be worth it. If you are saving $100 a month because you received a lower interest rate, but is costs $3,000 to close — are you really saving any money if you move in 2 years?

I am starting to see slightly longer days to close as a result of the lower interest rates. Although purchases tend to take priority with lenders, re-fi’s still add to the amount of work that needs to be done. I am starting see lenders ask for 40 days, when it normally takes 30 to close.