Mortgage rates decrease

Mortgage rates decrease in first week of April
30-year fixed-rate mortgages backed by FHA drop to 3.87%

Mortgage applications decreased 2.4% from one week earlier, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending April 6.

The MBA also reported that the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.10% from 4.16%, with points remaining unchanged at 0.43 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. This is the lowest 30-year fixed rate since March 9, 2012. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.43% from 4.46%, with points decreasing to 0.36 from 0.49 (including the origination fee) for 80% LTV loans. This is the lowest 30-year jumbo rate since March 9, 2012. The effective rate decreased from last week.

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The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.87% from 3.89%, with points decreasing to 0.55 from 0.58 (including the origination fee) for 80% LTV loans. This is the lowest FHA rate since March 9, 2012. The effective rate decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.37% from 3.40%, with points decreasing to 0.37 from 0.41 (including the origination fee) for 80% LTV loans. This is the lowest 15-year fixed rate since March 9, 2012. The effective rate decreased from last week.

The average contract interest rate for 5/1 ARMs decreased to 2.89% from 2.93%, with points increasing to 0.38 from 0.35 (including the origination fee) for 80% LTV loans. This is the lowest 5/1 ARM rate since March 9, 2012. The effective rate decreased from last week

Dollars and Cents of Fixed Rate Loans

30 year fixed rate loan vs. a 15 year fixed rate loan

 

 

After finding your perfect mountain property, now comes the all important step of obtaining a loan. Choosing a loan type that best suits your needs as well as deciding if you want to buy down your interest rate are very important financial decisions which could save you thousands of dollars over the course of the loan.  

Let's take a look at a generic example.
Purchase Price: $500,000
% Downpayment (20%): $100,000
Loan Amount Needed: $400,000

In essence, you will be going to a lender and asking for a $400,000 loan.  
1st- you will need to decide between a fixed rate product vs. an ARM (topic of a future blog)

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For the sake of this example, you decide to do a fixed rate loan.  Let's take a look at your financial obligations by looking at a 15 year fixed rate loan vs. a 30 year fixed rate loan on a $400,000 loan.

For the sake of this example, we are going to use the following interest rates:
30 year fixed rate interest rate: 3.85%
15 year fixed rate interest rate: 3.25% 

30 year fixed rate at 3.85% for $400,000 would result in a monthly loan amount due (principal & intersest only) of $1.875.23

15 year fixed rate of 3.25% for $400,000 would result in a montly loan amount due (principal & interest only) of $2,810.63

What this means to you on a montly basis is that a 30 year loan would result in saving you ~$1,000 per month in loan expneses vs. what you would need to pay on a 15 year loan.  

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So what is the benefit of the 15 year fixed rate loan if you have to pay more every month you ask?.  

If you paid $1,875.23 every month for 30 years (total of 360 payments: 12 months x 30 years) and at the end of 30 years paid off your loan, you would have paid a grand total of $675,082.80

If you paid the 15 year loan at $2,810.63 every month for 15 years (total of 180 payments, 12 months x 15 years) and thus paid it off as well, at the end of 15 years you would have paid a grand total of $505,913.40.

This is obviously the benefit of the 15 year product vs. the 30 year product.  The fact that over the life of the 15 year fixed rate loan you will have saved yourself roughly ~$170,000 in additional interest payments vs. a 30 year fixed loan for repaying the same $400,000 that you initially borrowed.

Each loan type has their pros:
30 year: less financial obligation on a monthly basis
15 year: less interest repaid over the life of the loan

Another Option to Consider. 
Ask your lender if the loan type you are getting allows you to pay additional principal towards your loan if you wanted to. Then you could get a 30 year loan, pay the $1,000 extra per month and thus treat it like a 15 year loan when you can but if you have a tight financial month (health, large purchase, Christmas gifts, travel, Tax Day...) you are only required to pay the $1875.23 using our example

What loan type works best for you is something for you to think about as well as discuss with your loan officer.