Low mortgage rates | Low interest rates make it attractive to buy in Austin, Texas

Low mortgage rates are making it very attractive for qualified buyers to purchase an Austin home.  For those homeowners that don’t have enough space in their existing home, the low mortgage rates are providing homeowners a good opportunity to move up into a larger home.  Freddie Mac began tracking mortgage rates in April of 1971.  According to Freddie Mac, December’s rate of 5.29% was the lowest monthly rate on record.  This is opposed to previous periods of time when rates were much higher such as August 2008 when the 30 year fixed rates was at 6.48%.  In order to understand the benefits of low interest rates, let’s consider the circumstances of a buyer who needs to pay no more than $885 per month in principal and interest payments in order to purchase a home.   In August 2008 a qualified buyer would have been able to purchase home for $175,000 with 20% down on a 30 year fixed rate mortgage at 6.48% resulting in monthly principal and interest payments of approximately $883.  In early January when mortgage rates were at 5.26% this same qualified buyer could now purchase a home for $200,000 resulting in monthly principal and interest payment of approximately $885.  This is a 12.5% ($25,000) higher purchase price for the same monthly payments on a 30 year note simply due to the lower interest rate.  Now that is a deal!  However, if this loan exceeded $417,000 then it would qualify as a 30-year jumbo mortgage as set by Fannie Mae and Freddie Mac (the 2007 limit is $417,000 in the continental U.S., and $625,500 in Alaska, Hawaii and the U.S. Virgin Islands). Jumbo mortgages generally have a slightly higher interest rate than smaller (sometimes called “conventional” or “conforming”) mortgages.  As of 1/23/09 the interest rate for a 30 year fixed jumbo mortgage was 7.01% according to bankrate.com. 

Below is a payment chart for a 30 year fixed mortgage with the interest rate along the top, the loan amount on the left column, and the estimated monthly payment amounts underneath the interest rates and to the right of the loan amounts.  The top chart represents a 30 year fixed mortgage rate and the chart below it represents a rates for jumbo loans.

In consideration of the constantly changing credit markets, I would like to share a note that I received from a friend of mine who is a mortgage broker in Austin, Texas.  Her email highlights the fact that getting a loan is not only more difficult, but a little more complicated than it was before the credit crisis.  The good news is that a reliable mortgage broker or lender will be able to give you a quote quickly, but they will need some more information than required previously to give an accurate interest rate estimate.  Ashley Hall, the President of Barton Hills Mortgage in Austin Texas wrote, “In response to higher mortgage default rates experience by Fannie Mae and Freddie Mac, the largest buyers of 30 year fixed, conforming mortgages, the formal announcement of “Risk Based Pricing” was established during 2008. Before this was announced, a 30 year fixed rate loan was basically the same price for any borrower with a credit score of 660 or higher and a loan amount up to 95% of the home value. But now, Fannie and Freddie require pricing “add-on’s” using a matrix of credit score and loan to value percentages. This risk based pricing is MANDATED by Fannie and Freddie, and is required of ALL lenders originating a conforming 30 year fixed.  Sometimes the interest rate can be increased to cover these add-on’s without having to pay them out of pocket, but that is becoming increasingly difficult in today’s market. Investors have changed the way they create rate sheet options, and they offer very little in the way of “premium pricing”, which used to allow options for closing costs or points to be covered in return for a higher interest rate. But in today’s environment, sometimes the add-on’s must be paid in the form of points – to either keep the rate and corresponding payments as low as possible, or sometimes because there simply is no other way they can be covered.   The bottom line is – consumers cannot just call a lender and say: “what’s your rate and closing costs?” There are simply so many unknowns with the combination of credit score, loan to value percentages, property type, etc… that any reputable lender should be upfront, and be clear that any quote given is based on an assumption of certain parameters.”

LOOKING TO BUY OR SELL A HOME IN AUSTIN, TEXAS? Contact Brian Talley of Regent Property Group at 512-554-9714 to get started on your Austin home search. 

Source: The information provided in this report was provided by Freddie Mac, Bankrate.com, and Ashley Hall of Barton Hills Mortgage but summarized by Austin REALTOR® Brian Talley of Regent Property Group.  Contact Brian Talley at 512-554-9714 if you need help buying or selling Austin real estate or acquiring Austin office space. The information contained herein is subject to errors, omissions and changes without notice.  Any information, statistics, analytics, recommendations or opinions provided in this report are subject to errors and/or omissions and are not in any way guaranteed as accurate or reliable by Brian Talley or by Regent Property Group LLC.