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Impact of Interest Rates

Here’s a quick read from one of our Preferred Lenders Ian Macdonald on Interest Rates

Lately, I have been asked about the impact of interest rates on the affordability in the housing market. While rates have certainly fluctuated to higher levels over the last year they have come down since the beginning of March and from a historical perspective, interest rates are still very low. In fact, rates are about the same right now as they were in the beginning of 2017. So, let’s look at how rates affect a person’s purchasing power and the affordability of a home…

Let’s use a $250,000 loan for our example (not factoring in the cost of taxes and insurance):

  • $250,000 at 4% rate for 30 years = $1193
  • $250,000 at 4.5% rate for 30 years = $1266 (+$73 difference)
  • $250,000 at 5% rate for 30 years = $1342 (+$149 difference)

This gives us the good rule of thumb that for every .5% in rate the borrower will pay $75 more a month on a $250,000 loan.

Let’s look at this the other way. How much does an increase in rate affect the consumer’s purchasing power? Let’s say that same borrower who could budget for $1193 a month on a $250,000 loan at 4% has rates rise .5% while they are shopping.  To stay at the same amount per month of $1193 at a rate of 4.5% that would reduce the loan down to $235,451.  For that same borrower to stick with their original budget they would have to either put down $15k more or find a house that costs $15k. You can see how for every .5% increase in rate the customer’s purchasing power was reduced by about $15,000.

What about if rates went up .5% and home values went up 5%? How would that affect the homes cost?

Let’s take that $250k loan at 4% and up it 5% on amount to $262,500 and up it .5% on rate to 4.5%. That $1193 payment would go to $1330.  That’s an 11.5% increase in the cost due to the compound effect.  I think that’s substantial.

Interest rates are probably going to stay around the 4.5% mark on 30 yr. fixed for the remainder of the year. I do not think we are in danger of rates over 5%, but do any of us really know? The important thing for your clients to understand is the cost of waiting or walking away from a plan over a minor difference in sales price.

 

 

VA & FHA Construction Perm Loans

 

VA and FHA Construction Permanent Loans

TrustLine Mortgage is pleased to offer VA and FHA Construction Permanent Loan programs.  These programs enable our Veterans and other borrowers to finance 100% and 96.5% of the construction respectively.  Our Construction Perm loan is a true one-time loan application, approval and loan closing covering both the Construction and the Permanent mortgage loan.  We simply convert or modify the construction loan into a permanent mortgage after the builder finishes the home.

The CP loan offers a construction draw period which allows us to disburse the loan funds during the phase of construction which is based on the inspection of the property and on the percentage of completion of the home.  Interest only payments are required during this construction draw period. When the home is completed and upon receipt of the Certificate of Occupancy and final inspection the loan will convert/modify into the permanent mortgage loan.  This is when regular mortgage payments are based on the permanent loan interest rate and the loan term commences.

Please contact Allen Tyre at 904-398-6220 ext 1111 with any questions or to apply for a CPERM loan.  You may also reach him at atyre@trustlinemortgage.com or visit his website at www.trustlinemortgage.com