Because of recent government involvement, an opportunity exists today that may never again be available in our lifetimes. Two advantages are available to a home purchaser today that may disappear in the future due to current government changes now under consideration:
- Historically low interest rates
- The ability to lock in these rates for thirty years.
Those low interest rates
Because of the financial crisis, the government stepped in and instituted a series of programs which pushed mortgage interest rates to historic lows. If we look at 30 year mortgage interest rates before and after government intervention we can easily see the impact of these programs.
According to Freddie Mac, from 2006 to the start of the financial crisis (the fall of 2008), the average rate was 6.29%. Since then, the average rate has been 4.92%.
A purchaser can still get a 30 year-fixed-rate-mortgage at approximately 5%. However, interest rates this low may soon disappear. The government is questioning its role in supporting homeownership and is now discussing ‘privatization’ of home mortgages.
What will be the result if big banks control most of the lending and FHA goes away?
Higher interest rates and a predicted loss of the 30 year-fixed mortgage. In its place may be a preponderance of adjustable rate loans. According to Mark Zandi, Chief Economist of Moody’s Economics.com:
“…The fixed-rate share in the U.S. would decline to an average of between 10% and 20% of the mortgage market compared with a historical average of closer to 75%.”
Other countries, like Canada, only allow a purchaser to lock in a rate for a five year term. After that, the borrower must re-negotiate a new mortgage at current rates. Could that happen here?
For more discussion check out the blog: http://kcmblog.com/2011/03/02/for-buyersthe-financial-opportunity-of-a-lifetime/