Mortgage Rates and How To Beat The Homebuyer Tax Credit

Mortgage Rates Continue To Drop

"Today's mortgage rates are officially the lowest rates I have ever seen in my 25 years in the mortgage business."
- Bob Germano, 6/24/10

I had a discussion with a colleague at the end of 2009 to discuss the forecast of the mortgage market. We had a friendly debate about how the economists at the bank he worked for were forecasting drastic reductions in mortgage origination volume for 2010, that the housing market would continue to decrease and mortgage rates would be dramatically higher by the middle of 2010. I disagreed, citing that housing needs to lead the charge back to economic recovery, that there were too many negative economic factors that had not really been dealt with yet and that if the past two years have proven anything, traditional forecasting tools may not predict as well as they used to.

I went back and researched where interest rates were at the beginning of 2010 and am happy to report that at the midway point of the year, not only have rates not gone higher, but they are actually about 1 1/2 percent lower than they were in January.

As a result, I am recommending to everyone I know:
- If you have a fixed interest rate higher than 5.25% , you should explore refinancing.
- If you are in an Adjustable Rate Mortgage, you should explore refinance options regardless of your current rate
- If you are thinking of purchasing a new home, buying a second home or investment property…now might be the best time to take advantage of both market pricing and payment affordability

With the sunset of the home buyer tax credit on 4/30/10, it is my opinion that this should not keep potential buyers out of the market. Believe it or not, there may be greater savings opportunities now than when the tax credit was available.

Consider these hypothetical scenarios*:

Here are the rates, payments and interest amounts based on interest rates as of 4/23/10:

Loan principal amount $417,000.00

Annual loan payments $27,632.28
Annual interest rate 5.250%, APR: 5.34%
Monthly payments $2,302.69
Loan period in years: 30
Interest in first calendar year $12,726.36
Base year of loan 2010
Interest over term of loan $411,968.40
First Payment Due: June
Sum of all payments $828,968.40

Here are the terms borrowers could have locked in on 6/24/10:

Loan principal amount: $417,000.00
Annual loan payments: $25,354.56
Annual interest rate: 4.500%, APR: 4.58%
Monthly payments: $2,112.88
Loan period in years: 30
Interest in first calendar year: $7,798.08
Base year of loan: 2010
Interest over term of loan: $343,636.80
First Payment Due: August
Sum of all payments: $760,636.80

*740+ credit score, full income documentation, purchase or no cash out refinance, 80% LTV . Rates change daily.

Based on the above, a loan on 6/24/10 would recoup $8,000 in 3 ½ years but more importantly, have a payment that is $190 lower and interest savings greater than $68,000 ($5,000 (e) in interest alone in the first year). If a consumer missed the tax credit expiration, they could possibly save more money by doing so.


I hope that people are running home to get their mortgage situations reviewed or calling their realtors to show them their next home. It's about time consumers can say the economy can work to their benefit.