Some may not believe that housing prices have stabilized and have shown improvement in the most affordable price ranges. New home builders are beginning to slowly release new products to the market here in Orange County. As the economy stabilizes further gains of improvement will emerge for housing.
The Federal Reserve has already been making public statements on their policy for not letting inflation run up as the economy begins to improve. They control inflation by raising interest rates to tap the breaks on the economy, not letting it pick up too much speed. The Fed's purchasing of $1.25 Trillion in mortgage-backed securities campaign is about to end March 31, 2010. The result of the government program has been lower interest rates.
With the current state of affairs with both housing and the economy it's not realistic to think interest rates will rise quickly soon. However, it was a little over two years ago when rates were two-percent higher. Chances are over the next two years interest rates will increase and, as they do, the cost of the financing is added to the total cost of the home.
Most borrowers think of the higher monthly payment as rates rise but the long term cost of loan increases dramatically as well. Let's say for an example a borrower purchases a home for $500,000, puts twenty-percent down and gets a loan in the amount of $400,000. These two examples show what the additional costs would be financing interest rates two-percent higher.
- Interest Rate: 4.875% Monthly Payment: $2,117
- Interest Paid after 5 Years: $93,669 10 Years: $178,156 30 Years: $362,060
- Total Cost of Loan: $762,060
- Interest Rate: 6.875% Monthly Payment: $2,626
- Interest Paid after 5 Years: $133,682 10 Years: $257,559 30 Years: $545,977
- Total Cost of Loan; $945,977
Difference of the monthly Payment: $511
Difference of Interest Paid:
- after 5 Years: $40,013
- after 10 Years: $79,403
- after 30 Years $183,917
Now is the best time to purchase a home here in South Orange County.
Tim Lorenz
Instant MLS Listings & Free Market Analysis
"We have actually closed many short sales!"
949-282-2521
Tim Lorenz . Over 40 Years Experience Representing South Orange County Home Buyers, Sellers, Investors and Relocations!
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