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In the Long-Run, Current Mortgage Rates Can Save You Money

The bottom line is that minor price fluctuations have only


a minor impact on the monthly payment, while even small
changes in mortgage rates can make a big difference when
calculating the monthly payment.

In the long-run low mortgage rates should be a major
deciding factor as rates are very likely to edge up over the
next 6 months. When you have rock bottom rates, they
really have nowhere to go but up. Waiting on the sideline
could mean the difference between qualifying and not
qualifying to buy a home.
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The Price/Rate Trade-Off:
Currently, most people are concerned about where prices are headed and whether or not prices have bottomed.
However, one thing to consider as you are thinking about your first (or next) home purchase is the mortgage rate as
most forecasts call
Which is better? A Lower Price or A Higher Rate?
The California statewide median price was $291,760 in
May 2011. At the same time, the average mortgage rate on
a FRM was 4.64 percent
weekly survey of mortgage rates), corresponding to a
monthly principal, interest, taxes, and insurance (PITI)
payment of $1,538 (assuming a 20 percent down payment
and a 30 year term). If the price declines by 3 percent, the
monthly PITI would drop to $1,492 saving $46 on the
monthly payment. What if the price drops by 3 percent, but
mortgage rates rise by of one percent to 5.14 percent?
The monthly payment would rise to $1,560, which is $68
more than the PITI for the lower priced home, thus wiping
out any gains made from the price decline.

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