In case you haven’t heard, over the weekend the free-marketeers over at the Treasury Department have taken over Fannie Mae and Freddie Mac. I’m all for it, of course. The hypocrisy kind of makes me sick – they’re all for government intervention to help out the banks and whatnot, but when it comes to helping out the middle and lower classes with, I don’t know, a tax cut or a single-payer health care system – forget it.
But I digress – I’m totally for the bailout. We just can’t afford a collapse of the whole mortgage lending system. That would just be catastrophic, and would end up hurting many more people than simple inaction and the possible collapse of Fannie and Freddie.
The good news out there for you, Mr. Middle Class Home Buyer, is that interest rates have plunged. Apparently, a confirming 30 year fixed loan is down to about 5.75%. That’s pretty good. Rates had been about 6.5% on Friday, so this is a huge drop.
Now, for those of you who are using FHA Financing (typically first-time and low-income buyers) – you’re out of luck. It seems that FHA rates will remain about 6.5% for the time being.
Of course, as you can imagine, an event of this magnitude is likely to cause quite a bit of perturbation. Rates could be this low only for a short time – they could go right up again before we know it. Or, of course, they could drop even further. Who knows?
Interest rates vary all the time, and they vary from borrower to borrower and lender to lender. But let’s assume that on Friday, your rate would have been 6.5%, and today, it’s 6% – in other words, a 1/2% drop. Let’s also assume you’re buying a median house in Santa Cruz, and you’re putting down, say, 15%. The median price these days is around $610,000 – so your loan would be $518,500 (yes, I’m assuming you have $91,500 handy for a down payment!).
At 6.5%, your principal and interest payment, for a 30 year fixed loan, would be $3,277.27.
At 6%, your principal and interest payment for a 30 year fixed loan, would be $3,108.66. That’s a difference of $168.61 a month.
Hey, calm down! Don’t get so excited! It may not seem like much – but it is a bit more than a 5% savings in monthly payments. Until you figure in tax and insurance, of course. Your tax would stay the same – about $559 per month, and insurance would be, oh, $75 a month. So your true payment with a 6.5% rate would be around $3,911.27 a month, which puts your actual savings of $168.61 at somewhere around 4.3% per month.
Still, $168.61 ought to pay for at least a few refills of the ol’ Prius, eh?