Why do Mortgage Brokers and Real Estate agents track mortgage interest rates daily? The difference in just a few percentage points means a family might be looking for their range of affordable houses in two completely different neighborhoods or even zip codes.
If the typical American family makes $60,000 a year and has basic living expenses and a normal amount of debt, they can afford approximately $1,850 a month for their housing payment. (The calculation is based on $2,250 in total expenses, including a car and house payments.) What does that translate into as far as how much home this family can afford? Well, the answer depends on the mortgage interest rate at the time of application. This integral number factors into each monthly payment, which in turn factors into the overall amount of home loan they are allowed to borrow.
How are these rates determined? And how can they change daily? It is a complex formula based on the secondary market where mortgages are bought and sold. Mortgage rates most closely follow the 10 Year Treasury Bond, but fluctuates as bond prices changes. The economy is also a factor and if it is slower economy, rates drop which encourages homeowners to buy. Both Freddie Mac and Fannie Mae are government agencies that try to keep this secondary market stable.
Comparing this same family’s buying power now and in 2000, they could afford much more home now because the rates are lower. In July 2000, mortgage interest rates were 8.5%, which meant they qualified for a $250,000 home. If they put 20% down at 8.5%, they would have a $200,000 loan amount. After taxes and an insurance escrow at $315 month, the payment would be $1852.83 a month.
This same family can now afford a loan for a $400,000 home. If they put 20% down at 3.75%, they would have a $320,000 loan amount. After taxes and an insurance escrow at $370 month, the payment would be $1851.97 a month because rates have dropped. This scenario assumes the same income and debt ratio as the previous example. You can understand why anyone working in the real estate profession would be tracking these rates closely!
Lord Mortgage provides daily, live rates so you can predict the best time to buy a home or even refinance your current home. Add this site to your favorites, so you can also stay ahead of the curve http://www.lordmortgage.com/#!rates/c11su
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