Sanity Check For Your Interest Rate
The U.S. Government's Consumer Financial Protection Bureau has recently created a web page you can use to find current home loan mortgage rates based on location and credit score. This can help you see if the interest rates you are quoted are within the typical range. It can also help you see the affects of credit score and location. It is in Beta status as of Jan 15, 2015.
Mortgage Payment Calculator
The calculator provides a quick way to get a fairly accurate estimate of the monthly payment for a mortgage that is under consideration. It is often helpful to see what happens to the mortgage payment as interest rate and the mortgage length are changed.
Table of Monthly Mortgage Payment
This table shows the monthly mortgage payment (principle + interest) for a $100,000 mortgage for interest rates ranging from 4% to 10% and for a mortgage length ranging from 10 years to 30 years. This table provides a quick snapshot of the effect of interest rates and mortgage duration on the monthly payment.
|Monthly Payment for $100,000 Mortgage|
|10 yrs||15 yrs||20 yrs||25 yrs||30 yrs|
Build Equity Quickly With Low Interest Rates
One thing that is often overlooked when comparing interest rates is how quickly equity builds. Everyone realizes that the monthly payment is lower for lower interest rates. Another big advantage is that even with the lower payment, equity builds faster with a lower interest rate. The graph of equity vs. time for the three different interest rates shows that an interest rate of 3% builds equity nearly twice a fast during the first five years as an interest rate of 6%. An interest rate of 3% builds equity nearly three times as fast as an interest rate of 9% during the first five years.
Equity vs Time For Different Interest Rates
Low interest rates provide a double advantage: lower payments and quicker build up of equity. The table below shows that in five years $20,739.96 more equity would be built up at 3% compared to 6%, even though the payment is $889.73 less per month.
|Equity vs. Time, Different Interest Rates|
|$500,000 loan||3% interest||4.5% interest||6% interest||9% interest|
|year 5 equity||$55,468||$44,210||$34,728||$20,599|
|year 10 equity||$119,901||$99,553||$81,571||$52,851|
|year 15 equity||$194,747||$168,830||$144,756||$103,348|
|year 20 equity||$281,690||$255,551||$229,982||$103,348|
Graph of Equity vs. Time for Different Interest Rates
The blue line shows that equity builds much quicker at a 3% interest rate than at higher interest rates. If you were to sell your home after 5 to 10 years you would have significantly more equity which could be used to buy a more expensive home or for whatever else you choose.
Freddie Mac Calculators
Freddie Mac has a number of different calculators which can help you analyze a home purchase. They can be reached from the Freddie Mac calculator page at http://www.freddiemac.com/homeownership/calculators/.
Rent vs. Buy
Freddie Mac has an on-line calculator which can help you analyze renting vs. buying. The calculator can be brought up as a pop-up window Freddie Mac Rent vs. Buy Calculator.
The tax savings of owning a home can be analyzed using the pop up Freddie Mac Tax Savings Calculator.
How Much Can You Borrow
Special Case Mortgages
Mortgages For Seniors - "You can also use a HECM to purchase a primary residence"
A mortgage which should be considered by senior citizens is the "Home Equity Conversion Mortgage" or HECM available through an FHA approved lender. Please see http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmabou . One feature that is often ignored is, quoting from the linked page: "You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing."
CHF Access Program
The CHF Access Program is designed to assist low-to-moderate income home-buyers by helping finance most of the down payment. The program combines a 30-year fixed interest rate FHA First Mortgage Loan with a low fixed interest rate Second Mortgage to finance up to 99.5% of the purchase price.
FHA 203(k) Loans - purchase (or refinance) and renovate single family properties
The FHA 203(k) mortgage enables home-buyers and homeowners to finance both the purchase (or refinance) and an additional $5,000 to $35,000 into a single mortgage to rehabilitate their home.
The total value of the property must fall within the FHA mortgage limit for the area. All people who can make the monthly mortgage payments can apply. Section 203(k) insured loans can save borrowers who are making significant improvements time and money.
The U.S. department of Veterans Affairs provides a home loan guarantee which enables service members, veterans, and eligible surviving spouses to obtain home loans. Information can be found at:
CalVet Home Loans
The California Department of Veteran Affairs also has a loan program. Information about it can be found at:
Choosing a Lender
There isn't one lender who is always better than another. Home buyers often pick lenders based on what is advertised: interest rates. However you may not be able to get the interest rate that is advertised. Buyer qualifications, the home, time, and other factors all affect the interest rate you will get and who is the best choice of lender. Your choice of lender can affect whether your purchase offer will be accepted. An experienced real estate agent can advise you of lenders which can deliver results for your purchase.
Pre-approval does not guarantee quick funding of your loan. Your real estate agent may recommend a different lender for a number of reasons such as quicker funding, the lender has already approved the HOA, etc.