By Jane Clark Realty
Do you think the Interest Rate Is Going To Go Down? That question is one that I get asked a lot from McKinney Real Estate clients who are making loan applications. Should you decide to “Lock” or “Float” the Interest Rate? I also get asked the same question when clients ask about pre-approving mortgages because they are still undecided between purchasing a property now or waiting. Many clients are still expecting Interest Rates and Sales Prices to continue to go down. I always explain to my clients that there can be a hidden cost of waiting to purchase if interest rates and/or sales prices go up instead of down.
The cost of waiting can have a two-fold effect. If interest rates and/or sales prices go up, the same house will cost more. This is obvious, what is not so obvious is the loss of purchasing power if they guess wrong. Let me explain with the use of the chart below which is one of two excel spreadsheets that a loan officer might use to quickly show borrowers the reduction in their purchasing power if they wait, and interest rates go up. The one below is for FHA Mortgages, and is a great illustration.
Once I put in the maximum total monthly payment (principle & interest, taxes, homeowner insurance, MIP) that the borrower can qualify for, in this case $1,500 at a 30 year term, it automatically calculates the maximum sales price that monthly payment will purchase at different Interest Rates. As you can see on the chart, if the most a borrower can pre-qualify for is a total monthly payment of $1,500 per month, they will be able to purchase a house with a sales price of $186,612 at 3.5%. However, if the Interest rate increases by even a small amount like .25%, they will not be able to purchase the same price house. An increase of .25% in the interest rate will cost them $4,291 in purchasing power, which will lower the maximum sales price to $182,321.
The spreadsheet also let’s borrowers see quickly what their overall costs, and total interest that they will pay with each increase in the interest rate. For example, if the interest rate goes up by one full percent, the borrowers will pay $22,297 more in Interest over the 30 yr life time of the mortgage, on a house that is $16,512 lower in price. That is a very high cost for choosing to wait.
The nice thing about using a spreadsheet like this, is that I can quickly show clients not only how much purchasing power they are losing each time the Interest Rate goes up, but I can also quickly show them the same thing for lesser or higher amounts as well. Once clients can visually see the real tradeoffs associated with that waiting To purchase, most often they come to the realization that waiting may not be such a good idea. McKinney real estate can be one of the better investments one can make.
About McKinney Realtor® Jane Clark,
Jane Clark Realty is associated with Keller Williams McKinney. Jane is a nationally recognized TOP 5 elite producer for Keller Williams. Jane is a perennial winner of D Magazine’s Best Realtor award and has been voted the BEST McKinney Realtor. Jane specializes in homes for sale in McKinney and is a successful Allen TX Realtor as well. Jane Clark has been a fixture in McKinney real estate for 14 years and her office is located inside of Keller-Williams-McKinney at
Jane Clark Realty
6951 Virginia Parkway suite 100
McKinney, Texas 75071