Lower Mortgage Rates Impact Home Affordability

Comparing July’s conforming mortgage rates to today’s average rates, there’s a 1.5 percent difference in favor of homeowners.

Rate drops like that make big differences in a household budget.  Look at these before-and-after payments, based on rates from the chart:

$150,000 mortgage ($144 savings/month)

• July 2008: $958 monthly
• February 2009: $814 monthly

$250,000 mortgage ($240 savings/month)

• July 2008: $1,597 monthly
• February 2009: $1,357 monthly

$350,000 mortgage ($335 savings/month)

• July 2008: $2,235 monthly
• February 2009: $1,900 monthly

Of course, the other side of the story is that while mortgage rates fell through late-2008, the mandatory lender fees that accompanied them rose.  Especially with Big Bear properties that are purchased as a second home or investment. They then to have more add-ons and higher interest rates than a primary home does.  Those lessened some of the benefits of getting lower rates, but certainly not all of them.

Lower interest rates plus more bank owned & short sales properties have created some momentum for this market.  Add dropping prices to dropping interest rates and you have the perfect buying storm.

According to recent housing data, buyers are back writing contracts and listed homes are selling quickly.  Considering how mortgage rates have led monthly payments lower, maybe it shouldn’t be much of a surprise.  It will be interesting to see how long this trend lasts.

(Image courtesy: The Wall Street Journal)