Tuesday, July 20, 2004

Mortgage rates rise

Bankrate.com reports that mortgage rates have gone up slightly. The 30 year fixed rate loan is now at 6.11%, compared to 5.83% a year ago.

There is still strong activity in the loan market. Bankrate.com reports that the loan lock in period is important, and many people are opting for a longer rate lock in period. You may have to pay money to have your interest rate locked in for a longer period than the lender is normally offering. You will want to figure out just how much that rate lock in is going to cost you, and if it's worth it!

The article at Bankrate.com explains how to look at this:
"Start out by doing some math, then exercise judgment. Let's say you want to borrow $200,000. You can pay one point for a 90-day lock at a rate of 6.25 percent. You're betting $2,000 that the rate will rise substantially.

"If rates don't rise, you lost a $2,000 wager. Your monthly principal and interest payment on a 30-year fixed-rate loan are $1,231.43.

"But what if rates do rise, to 6.5 percent? If you hadn't paid the rate-lock fee, your monthly payment would have risen $32.71. But you paid the two grand, saving yourself from that $32.71 extra in monthly payments. You would break even on your 62nd monthly payment -- five years later.

"If rates rose to 6.75 percent, your $2,000 rate-lock fee would save you $65.77 a month in house payments. You would break even in 31 months.

"This is where your judgment comes in: How fast do you fear that rates will rise, and how long are you willing to wait to break even on your rate-lock fee?"

The article goes on to give the opinion that it may not be worth locking in your interest rate, as the rate tends to go up slowly.

Well, you certainly will want to do your own calculation, and rely on the advice of your tax advisor, loan consultant or other financial advisor in this decision. But, it's something to think about!

To read the entire press release, go here.

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