Shedding Some Light on the Value of Today’s Low Mortgage Rates!!!


“I Saw the Light” – Todd Rundgren


I know I go “on and on” about how interest rates affect a buyer’s ability to purchase real estate. But, I can’t drive the point home enough. Maybe it’s because I started my real estate career with interest rates at 13%, that I know what this means to the average buyer!! So, this is a re-post from Hammer Financial Group.  If you like to crunch numbers or are interested in comparing the absolute value of a low interest rate, take a look at this set of calculations:

If we compare average 30 year rates (non-owner occupied) from 2005 to present, we can extract some key elements regarding affordability.

Assuming a loan amount of 200,000 (80% of a 250K sales price), the principal and interest payments are different by roughly $250. If you divide the 250 by the payment factor of 4.92 (30 year @ 4.25%) you get 50,410. (let’s call it 50K)

We can conclude today’s prospective buyers have an advantage of borrowing an additional 50K to apply to their sales price/loan amount budget and cash flow analysis.

Here’s another set of numbers.

Purchase price 250K
Loan amount 200K (20% down)
P&I = $984 + another $250 for taxes ($2500) and insurance ($500)
PITI = $1234.

If gross rent was $1500 and we take 25% off (for vacancies, repairs and maintenance), you net $1,125. So depending on property condition and tenant longevity, etc., it pencils out close to being a wash.

In 5 years, the principal would be paid down by $18,615
10 yrs $41,114
15 yrs $ 69,214

Now let’s add another layer of positivity. Assuming a 250K rental home in today’s market was very possibly worth 400K in 2005, that computes to a 37.5% change in value. I would be surprised to hear that rents have increased by more than 10%.

I think this shows beyond any doubt what a great opportunity is currently available for those willing to see it for what it’s worth.

I hope this helps shed some light!!

To your sucess,

Arnie • Hammer Financial Group NMLS Branch # 1788 NMLS # 64193

About the Author | Janeese Jackson

My job is service...service to you and your real estate transactions! How can you benefit from my 25+ years of experience and expertise? What can I offer to make the process more productive? * Current information on available housing...comparative and competitive market pricing and analysis * Daily involvement in the local real estate marketplace * Thorough, comprehensive knowledge reflecting years of helping others complete their real estate business * Extensive network of professional resources to make the process as smooth as possible My commitment is to you! Being available to you...returning your calls...answering your questions...addressing your concerns...respecting your money...matching your timeline...meeting your expectations...helping accomplish your real estate goals!!

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