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2011-03-15 11:22:36
Interest Rate Trends and MI for FHA loans

The most common question that I am asked recently is 'What are interest rates doing and what do you expect them to do in the future?' Although I don't have a crystal ball, nor am I a loan officer who deals with the ins and outs of loan on a daily basis, I will do my best to give a brief answer to this question.


Here is a graph showing Interest Rate Trends for Mortgages up to March 10th, 2011. It shows that since November of 2010, rates have slowly been creeping up with occassional dips. Rates are expected to continue their slow rise into the 5%'s and maybe even 6%'s. Rates are not expected to dip back down into the low 4%'s. I have been told to expect to see interest rates in the low 5%'s in Utah by summer.



Interest Rate Trends for March 2011


Here is a graph which shows how much (approximately) interest rates affect monthly payments of mortgages:

 

Loan Amount

Payment at 4.25% interest (2010)

Payment at 5% interest (2009)

Payment at 6.25% interest (2002-2008

Payment at 8% interest (92-02)

$100,000

$605

$650

$730

$850

$120,000

$730

$780

$875

$1,015

$150,000

$900

$975

$1,090

$1,265

$200,000

$1,200

$1,300

$1,450

$1,680

$300,000

$1800

$1950

$2,180

$2,530


So if you can afford to buy sooner rather than later, and you would like to buy in the next year or two, the general consensus is to buy sooner rather than later, especially if you plan to use FHA financing with the April 17th increase to MI fast approaching (see below). If you would like to sit down and discuss your options, don't hesitate to schedule a consultation with myself.


Reminder of Increase to Monthly MI on APril 17, 2011:

My preferred lender, Prime Lending, informed me last month of some upcoming changes to be made to mortgage insurance for FHA mortgages. The monthly mortgage insurance will be increasing from .9% to 1.15% on April 17, 2011; a .25% increase!!

 

The results in an increase of about $20.80 per month for every $100k borrowed. So on a $150k loan, the monthly payments will go up $31/month just to cover additional mortgage insurance fees which is pretty much throwing $31/month or $370/year in the trash. 

 

FHA mortgages are the primary loans for first-time home buyers and lower/middle class buyers due to the low down payment (3.5%) and the lowest interest rates for the low down payment type of loan. 

 

The important date to note is April 17th. If you lock in a loan on a specific property by this date, your loan will have the current lower monthly mortgage insurance rate. So you just need to be under contract or very close to being under contract on a property by that date. 

 

So if you were debating between buying this year or the next, or even this Spring or Summer, and you only have 3.5% or so to put down, you should definitely take this increase in FHA mortgage insurance into account.

 
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