When we were at the peak of the frenzy this March—everyone was hustling to take advantage of the $8000 & $6500 Government Tax credits—mortgage rates were a bit higher—approximately 5.375%. Now, the rates have dropped almost a half point; close to 4.875% on the 30 year conventional loan. This rate adjustment can have a huge impact on a buyer’s ability to afford a home.
Sellers are reducing their sale price slightly now that the tax credit deadline has passed. The sale price reductions coupled with the recent drop in interest rates makes right now, one of the most affordable times to be a homebuyer!
Here is a quick comparison to demonstrate the savings: With a loan amount of 300K, if the effective 30 year loan rate is;
5.375%, monthly P&I payment is: 1,679.91
4.875%, monthly P&I payment is: 1,587.62
A monthly savings of $92.29
Yearly Savings: $1,107.48
30 year savings: 33,224.40
This is a much bigger savings than the $8000 government tax credit.
Now, here is where it gets interesting: Instead of the sellers just lowering their price, let’s say the sellers offer to pay 2 points for the buyer’s closing costs to drop the rate even further down to 4.375%—6K cost to sellers—called “Seller Assist”—INSTEAD OF REDUCING THE PRICE by 6K. This will yield a 1,497.86 monthly payment. Now you are looking at a difference in monthly payment of $182.05—that is $2,184.60/year and $65,538 over 30 years. That is HUGE savings on the payment compared to a little more than a month ago.
As a home-buyer, you can get more for your money and make you feel GREAT about buying a house—even if you missed the Tax Credit!