Suntrust Mortgage’s Charlottesville Branch distributed this analysis (interest rates a year ago vs today’s) a few days ago.  It provides us with something to think about as it relates to buying a property before interest rates go up even if prices go down. 

Purchase Price/Rate Comparison from Suntrust’s Charlottesville’s Branch office:

“We all recognize that interest rates can’t remain low forever, although it should be noted that on Friday mortgage interest rates were 1.375% lower than the same day last year. Home prices are lower than the same time last year, yet many potential purchasers are still waiting for prices to move lower. The risk is when the price comes down will today’s low rates still be available (not to mention will the loan option still be available). Follow me on this.

1.     A $300,000 purchase with an 80% mortgage ($240,000) at today’s 30-    �
Year fixed rate would have a P&I payment of $1,270.
2.     If the sales price drops 10% to $270,000 with an 80% mortgage ($216,000) at the interest rate on this day last year, the P&I payment would be $1,329.
3.     If the sales price drops to $255,000 with an 80% mortgage ($204,000) at the interest on this day last year, the P&I payment would be $1,256.
4.     Sale prices have already reduced significantly over this time last year.
5.     How long will rates stay down and will the purchase price drop an additional 15% before rates go up?

A year ago Fannie & Freddie introduced ‘Risk Based Pricing’ and have continued to change the parameters. Adding the ‘Risk Based Pricing’ to the above example a borrower with a 720-739 credit score would have the following scenario:

1.     A mortgage of $240,000 would have a P&I payment of $1,348 with last year’s interest rate.
2.     A mortgage of $204,000 would have a P&I payment of $1,272 with last year’s interest rate.

Potential buyers must recognize that at some point waiting may change to ‘We waited too long’. These potential buyers stand the chance to miss the most lucrative purchasing window the industry will see for many years to come.”