Mortgage Rates on the rise http://moremoney.blogs.money.cnn.com...-climb-upward/
It appears that mortgage interest rates will start to be climbing again. not sure if this will be sustained but it could impact those who have been waiting for housing prices to bottom out in their areas. keep and eye on it....
"People don't care how much you know, until they know how much you care" - GKC
They have been saying that Mortgage rates will rise soon for over a year and a half.
I'm not saying that they won't. I'm sure at some point they will. However they will have very little effect on my decision to purchase a home. Mathematically the initial home price is much more of a factor than the interest rate. And home prices are still in a decline. The mentality of having a large downpayment and paying off your home early greatly decreases the effect that your interest rate has. I remember doing calculations on this before, wasn't it in this forum.
All in all, I think the media push on mortgage rates are just to drum up home sales.
What do you mean by large (like 20% or 50%) and by early do you mean paying 10% extra/month on a 30 year mortgage or getting a 7 year mortgage? For the second case I don't think interest rates will be going up enough to make a difference. For the first case I wouldn't be surprised.Originally Posted by 4jacks
Personally I would consider a 20% downpayment Large.
But in either case, the more money that you put down and the more money you pay extra each month, the less effect the interest rate has on your total money paid scenerio. Dave Ramsey has said once or twice that the average time it takes for people on his plan to pay off thier mortgage is 7 years. I don't know the details of that. But if you pay off a 30 year mortgage in 7 years, then the interest rate has much less of an effect than it would have if you had taken all 30.
i know DR recommends 15-yr FR mortgages so that is the predominant type of mortgage his "people" probably have. it would take substantial amount of fiscal creativity to be able to affordably pay down a 30-yr mortgage in 7 years (assuming the 30-yr payment is the 25-30% monthly income most personal finance resources suggest). although i wouldn't douby some hardcore DR followers could do it, i think they are pretty rare.
"People don't care how much you know, until they know how much you care" - GKC
I agree with you. I am not defending Dave Ramsey's position or opposing it. No doubt people who pay off thier mortgage in 7 years are rare. And I'm not suggesting that it is in my 7 year plan to become one.
However, I do have to point to the math, that may contradict some normal intuition on the subject.
Most people would be familiar with the fact that a $200,000 loan for 30 years at 5.5% equals a payment around $1,136 (principal and interest)
One might tempted to think that since cutting the length of the loan by 4 to get 7 years (7.5) that you would multiply the payment amount to figure out how much your monthly payment would be, and think that $4,544 would be the monthly payment to pay the loan off in 7 years.
However it is drastically less than that. To pay the loan off in 7 years it would be $2,874 a month.
http://www.bretwhissel.net/cgi-bin/amortize
I completely agree with you that tossing an extra $1,738 a month at your mortgage is extremely rare and would make it very difficult to even get by for 99% of the population. But if your following the Dave Ramsey program, and you don't have car payments and you don't have credit card payments every month, it's definitely possible.
We use to have a house payment of $650 per month and two car payments totalling $405 a month plus up to $300 a month in credit card bills. So if we got on the DR program when we first got married, we probably could of done it. But, needless to say, we didn't.
Another good reason to ignore the 25-30% recommendation. If you're satisfied with a house that only takes 10% of your monthly income and you're used to living on 50-60% it's relatively easy to put 40-50% of your income towards paying it off. And if you're confident that you can do that you can take out a 7 year mortgage and get an even lower rate.
If you are satisfied with a house that only takes 10% of your monthly income in savings, then you are either making some serious bankroll, or you live in the ghetto. I'm a doomer and I think house prices are falling, but they ain't falling that much bro. Or I guess you could of saved up a 90% downpayment.
Either way the 25-30% rule is a generalization. Mainly aimed at people in around the norm.
It seems that interest rates have to go up but for the next year I think they will be around 6% but after that who knows. I think housing prices will adjust to what the interest rate is because with the higher the interest rate the less house someone can afford so if people selling their houses want people to be able to afford it they will lower their prices. In some areas I can't see prices going down much more than what they are now but here is CA I can see where there could still be a significant drop in home values.
The problem with aiming at the normal is that the norm today to to be in debt.
I know people that live reasonably on $50000/year and people that live reasonably on $150000. I don't think that just because your salary goes up 200% that you should increase your spending that much.
I'm not doing the 10% mortgage but I have done that (renting) at times and it wan't in the ghetto and it was much nicer than my dorm room.
Allow me to restate that last line as "average income" instead of "norm"
I was not refering to anything that could be considered normal. I was just talking about being able to give advice to average people.
Besides getting your first job, a 200% increase in salary is not normal. or it doesn't happen to people on average. I agree it does occasionally happen, and your normal advice wouldn't apply in that situation.
Once again, I'm not saying it's impossible. But it is very far from normal. It just doesn't happen to average people. I'm living in the cheapest apartment I could find in my area and we are at 19%. I could move into the ghetto and I still wouldn't be at 10%. Of course we are still coming off of that huge housing bubble, so perhaps in the pre-2002 housing market, a family of average income ($40-50k) could rent for 10% ($333 - $416) But today, right now, in the United States of America, it's impossible to find rent in that range, that isn't in the ghetto. Maybe you could rent a room for that. But people who make 40-50k a year don't rent rooms in general.
I was being extreme to make a point that just because your income goes up doesn't mean you should spend more.
Why do you exclude your first job? If you use last years spending as a starting point for this years spending rather than starting with this years income that is a great place to start building margin into your finances.
200% in one year is unusual but if you're married it's not unusual to shift between single and double incomes (100% increase). My advice to people that see an increase is IF you were living ok before then don't increase your spending as a percent of your new income.
Let me put it another way. How much do you need to spend to live comfortably? I don't know what it is for you but I don't see why it should change if you get a raise. If you made 20% more could you use the extra to payoff a mortgage dramatically faster than normal. Yes but not if you base your spending on the higher income.
Of course this only works once you are spending less than you make.
Last edited by tim_v; 04-15-2010 at 10:18 AM.
I agree that the rates of the mortgage are on the ascending trend and which makes my kind of people to think for hundred times to get mortgage because it has becoming really tough for a lower middle class man to compete.Scottsdale Luxury Apartments
Last edited by Maurice111; 01-01-2011 at 04:06 AM.
Obstacles are the things we see when we take our eyes off our goals.
Mortgage interest rates remain usually higher and they are going to be raised higher near in future. And it is really tough for the people that what to do? and how to manage this problem?
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According to these charts (http://mortgage-x.com/trends.htm ) the mortgage rates have trended down since this thread was started...
Yeah thats true that the mortgage rates are rising because of the economic conditions of the world. It will rise more until the economy of the world gets stable.
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Last edited by Franklin; 08-06-2011 at 12:55 AM.
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