Denver I Q

Taking a look at the world economy today, there appears to be a better than even chance that bond prices will go up. You can do your own research, my point here is what that means to mortgage rates. Most casual observers mistakenly believe that the lowering of rates at the Federal Reserve Bank results in a lowering of mortgage interest rates. Not true. Mortgage rates are tied to bond prices. If bond prices go up, mortgage interest rates will go up. Here is one example:

NOW LOWER PRICE SAME RATE

Purchase Price: $300,000. Waiting for Lower Price: $280,000.
Todays Interest Rate: 6.25% same interest rate: 6.25%
Down Payment @ 10%: $ 30,000. Down Payment @ 10% $ 28,000.
P & I Payment: $ 1,662. P & I Payment: $ 1,552.

HIGHER INTEREST RATE LOWER PRICE, HIGHER RATE

Purchase Price: $300,000. Purchase Price: $ 280,000.
Later interest Rate: 7% Higher Rate: 7%
Down Payment@ 10% $ 30,000. Down Payment @10% $ 28,000.
Later Payment: $ 1,796. Later Payment: $ 1,676.

As you can see from the table, waiting for a price to drop $20,000 with a correspondent interest rate increase of 3/4 % will actually result in a higher payment. If you are seriously considering a home purchase, waiting might not be the smart play.

-that’s 30-