Low interest rates, as we all know, are making history. Last week, according to an article found on CNNMoney, “rates on both the 30-year and 15-year fixed loans fell to new records, at 3.89 percent and 3.16 percent, respectively, according to Freddie Mac.” The question, though, is how long will prospective buyers enjoy such low rates?
Even with these rates, sales are still sluggish, with the market flooded with family homes and investment properties. Doug Duncan, chief economist for Fannie Mae, suggests that “low and declining interest rates may cause homebuyers to hesitate: They may expect them to fall even further. On the other hand, rising rates, which often accompany an improving economy, can give potential homebuyers a reason to act—before rates and prices become less affordable.”
Potential buyers sitting on the fence waiting for the rates to go lower may be getting their reason to act: a recent action by Congress may be pushing those rates higher shortly. According to CNNMoney, “to pay for the extension of payroll tax cuts, Congress mandated an increase in fees for Fannie Mae and Freddie Mac loans. That could mean an increase in upfront costs for borrowers of about half a point, starting April 1. The new fee would add $500 for every $100,000 in principal.” Instead of an additional upfront fee, “borrowers could pay the fee as a higher interest rate, [adding] an additional one-eighth of a point to their rate,” according to Keith Gumbinger of HSH Associates. That amount might seem inconsequential, but when added to a $250,000 mortgage, the mortgagee could be paying approximately $225 more per year.
Andrea Szlavik of Prudential Fox and Roach in Collegeville states that “with a market filled with desirable listings, interest rates at historic lows, and a threat of rising rates, prospective buyers would benefit from getting off the fence and jumping into the present day ‘buyers’ market.’”