I was talking to Julie Baudier, my favorite lender today about the drop in interest rates and the effect it would have with people looking to purchase a new place. Its never too early to get an idea of what your note will be and what kind of payment you will be comfortable with. Doing this upfront is aways a good idea and great first step. If you are looking in the Spring this is the time to start learning about the market and the lending process. This is especially true of first time buyers but still true for experienced buyers.
Julie says “Six weeks ago a client signed a purchase agreement for $260,000 he was borrowing $208,000. We locked him in at a rate of 6.25% his Principal and interest payment was $1288.00. I lowered his rate today to 5.375% and his interest payment went down to $1174.00. His payment is now $114.00 lower than he originally panned. Lower rates save you money and increase the amount you can afford to but.”
Here are a couple of tid bits that we often forget to figure into the purchasing equation. Your home or condo is an investment and it nice to know some of the numbers.
An easy way to remember is that each quarter of a point will mean a drop of about $16 per every hundred thousand that you are borrowing. Another factor that many forget about $100 of your payment per 100k goes to pay day the balance of the loan in month one. This is building equity that you will not get renting.
The effective rate will be much lower when you add in your interest deductions. The higher the income the bigger savings. For example if you borrow 200k and you are in the 25% income bracket at 5.5% you payment is $1126 without escrows. Your interest is about $930 a month of when 25% or $372 is a tax break.
Your effective payment quickly becomes $1126 minus $372 tax break minus equity $196 or $584 per month. Of course you figure taxes and condo fees into your equation. Any appreciation is going to be tax free for most people.