Debt Ceiling’s Affect on Mortgages

After much debate in Washington it appears they have reached a plan to lift the debt ceiling.  What does this mean, my opinion and that is all it is, is NOTHING has changed.  From what I can tell neither a reduction in spending nor an increase in revenue was established, but instead an agreement to form a committee to address what can be cut and what revenue can be increased.  Once again I am no great economist, but in my opinion we are headed down a tough road.

Independent of your political beliefs, the government is currently impacting the real estate market in perhaps a manner not seen in any of our lives.  The rates are currently hovering at the lowest levels they have been in 50 years, due to tremendous amounts of government influence in the MBS (mortgage backed securities) market.  The interest rate could jump abruptly to 6% or higher if the government stimulus were removed from the current Fannie, Freddie, FHA and other programs.

We have put together a little scenario of what would happen when interest rates move were to move up.  They really impact across three different elements of the financial side of the real estate equation.  The obvious one is the higher the rate the higher the payment, the second is more income is needed to qualify for the same home, and thirdly a larger down payment is required in order to qualify for the same home.

Loan Reductions		Additional Down Payment		Additional Income
4.5%	$150,000	4.5%	$2,300	4.5%	$0
5.0%	$141,000	5.0%	$2,450	5.0%	$9,000
5.5%	$134,000	5.5%	$2,600	5.5%	$16,000
6.0%	$127,000	6.0%	$2,750	6.0%	$23,000
6.5%	$120,000	6.5%	$2,900	6.5%	$30,000
7.0%	$114,000	7.0%	$3,050	7.0%	$36,000

From the charts above you can see that a rate increase to 6% could impact with a reduction of loan amount (almost $25,000 on a $150,000 loan), or a down payment increase of $23,000 to stay within ratios, or lastly a $450 increase in income.  This can have a dramatic impact on our business and the scary part is that it could happen in a 30 day period.

Luckily this has not happened yet, but this illustration should be shown to your prospective clients as they may not understand the full impact of (just a couple of interest rate point hike).

We all know that in the last 30 years there were several stocks that produced millionaires… Yahoo, Microsoft, Sears, Walmart, Cisco, Apple, etc.  However timing is everything and the bulk of the gains were created early on.  In many cases an investment of $1,000 created a six figure return in less than 10 years.  However beyond that initial pop they leveled off and stayed more in-line with their peers performance.

The real estate deals are out there and the timing is perfect. Contact Benchmark Mortgage today to figure out how you can become your own stock millionaire.