# Mortgages, Interest Rates, Buy When?

Mortgage rates have been so low (comparatively speaking) for so long, that todays’ young or first time buyers don’t know any different. Today, they have to decide on 5 year fixed rates at somewhere around 3.65 % or variable rates in the 2.55% range. Fixed rates give you the comfort of knowing your rate and payment for the term of the mortgage while a variable rate is a better rate but may fluctuate with the market. Currently, there is no indication that rates are going to go up, so it is preferable for most people to take a variable rate – but always check with your mortgage broker.

To give you some perspective on how todays’ rates compare historically, let’s assume you’re buying a house for \$ 180,000 with 5 % down (\$ 9,000), resulting in a new first mortgage of approximately \$175,000 (with mortgage insurance fee added in). I will use the FIXED 5 year rate to compare. Buying this house today with an interest rate of 3.69% your monthly payment would be \$ 891 and if we assume taxes and heat costs of \$ 200, total monthly payments would be \$ 1,091. To qualify for this mortgage you would have to earn \$ 41,000 annually.

In the last 40 years, the highest mortgage rates were in 1981. Using the same scenario, your mortgage in that year would have been at 21.75%, so your monthly payment would have been \$ 3,055 and you would have to earn \$ 122,062 annually to have purchased it. Just 14 years ago in 2000, the rate was 8.75%, your monthly payment would have been \$ 1,420 and you would have had to earn \$ 60,750 annually to purchase it.

Back to the present. Many people try to save more money for their down payment and I certainly would not discourage doing so – but be knowledgeable about the rates and the differences they can make. If you earn \$ 41,000 a year now, and you were able to save 10 % of your gross income (that’s HEAVY savings), you would have an extra \$ 4,100 in a years’ time. It is reasonable, based on past and present values to assume a modest increase in the price of homes of say 2 – 3 %. At the lower increase, that \$180,000 home in one years’ time will cost \$ 183,600, so at that point you are only \$ 500 ahead. If it increased by 3 %, you would be \$ 1,300 behind! Further, if in a years’ time interest rates went up just ½ of a percent, say to 4.19%, your monthly payment would increase by \$ 48.00 monthly and over 5 years you would pay \$ 809 more interest. Things to consider when deciding to buy a home now…or later.

Lastly, I want to point out the difference it makes by paying a little extra each month. Using the same mortgage data as above, If your payment was \$ 891 monthly and you were able to pay \$ 925 monthly at the end of 5 years your balance would be \$ 2,300 LESS and if you carried your mortgage to the end, that small extra amount would see your mortgage paid off a year and a half earlier.

There has never been a better time to buy a home as far as interest rates go….but nothing lasts forever!